<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1999
REGISTRATION NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GOTO.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7379 95-4652060
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
140 WEST UNION STREET
PASADENA, CA 91103
(626) 685-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JEFFREY S. BREWER
CHIEF EXECUTIVE OFFICER
140 WEST UNION STREET
PASADENA, CA 91103
(626) 685-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
LARRY SONSINI BROOKS STOUGH
MARTY KORMAN RENEE F. LANAM
TODD CLEARY ANDREAS A. NICHOLAS
WILSON SONSINI GOODRICH & ROSATI GUNDERSON DETTMER STOUGH VILLENEUVE FRANKLIN &
PROFESSIONAL CORPORATION HACHIGIAN, LLP
650 PAGE MILL ROAD 155 CONSTITUTION DRIVE
PALO ALTO, CALIFORNIA 94304 MENLO PARK, CALIFORNIA 94025
(650) 493-9300 (650) 321-2400
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
Common stock, $0.0001 par value.................. $70,000,000 $19,460.00
- -------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- , 1999.
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- --------------------------------------------------------------------------------
PROSPECTUS
, 1999
[GOTO.COM LOGO]
SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
GOTO.COM, INC.:
- We have pioneered an
online marketplace where
any participating
advertiser can bid in an
ongoing auction for
introductions to
self-qualified,
prospective consumers.
- GoTo.com, Inc.
140 West Union Street
Pasadena, California 91103
(626) 685-5600
PROPOSED SYMBOL AND MARKET:
- GOTO/NASDAQ NATIONAL
MARKET
THE OFFERING:
- - GoTo.com is offering shares of its common stock.
- - The underwriters have an option to purchase an additional shares
from GoTo.com to cover over-allotments.
- - This is our initial public offering, and no public market currently
exists for our shares.
- - We plan to use the proceeds from this offering for general corporate
purposes, principally working capital, capital expenditures and
additional marketing and sales efforts, as well as potential
acquisitions.
- - Closing: , 1999
<TABLE>
<CAPTION>
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Per Share Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Public offering price (Estimated): $ $
Underwriting fees:
Proceeds to Company:
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</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS LLC
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
<PAGE> 3
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
GoTo.com owns common law rights in the United States in the service marks
GOTO.COM, GOTO, the GOTO.COM logo, SEARCH MADE SIMPLE and other marks. In
addition, GoTo.com has applied for federal registrations of these four marks and
other marks, including PAY FOR PERFORMANCE, TARGETED PAY-FOR-PERFORMANCE
ADVERTISING and SEARCH SYNDICATION NETWORK. All other trademarks or service
marks appearing in this prospectus are trademarks or service marks of others.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 4
Use of Proceeds..................... 18
Dividend Policy..................... 18
Corporate Information............... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Data............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business............................ 30
Management.......................... 42
Certain Transactions................ 52
Principal Stockholders.............. 54
Description of Capital Stock........ 57
Shares Eligible for Future Sale..... 61
Underwriting........................ 63
Legal Matters....................... 65
Experts............................. 65
Available Information............... 66
Index to Financial Statements....... F-1
</TABLE>
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before buying shares in the offering. You should read the entire
prospectus carefully.
GOTO.COM
GoTo.com has pioneered an online marketplace where any participating
advertiser can bid in an ongoing auction for introductions to self-qualified,
prospective consumers. The GoTo.com marketplace serves the needs of three
constituencies: Internet consumers, advertisers and destination Web sites.
GoTo.com improves a consumer's ability to quickly and easily find relevant
search listings for advertisers of information, products and services while also
providing advertisers with a cost-effective way to target potential consumers.
In addition, GoTo.com outsources its search service to destination Web sites as
part of its Search Syndication Network. Advertisers are attracted to GoTo.com as
a result of the large number of consumer acquisition opportunities, and
consumers are attracted to GoTo.com by the breadth of relevant advertiser links
displayed on our service. The GoTo.com Search Syndication Network affords
destination Web sites the opportunity to enhance their users' experience and to
generate additional revenue from their consumer audiences.
Search results on the GoTo.com service are rank-ordered through a
competitive bid process whereby each advertiser's bid represents the amount it
will pay GoTo.com for each consumer click-through. The advertiser with the
highest bid is listed first in the search results, with the remaining
advertisers appearing in descending bid amount order. Since advertisers must pay
for each click-through to their Web site, advertisers select and bid on those
search terms that are most relevant to their business offerings, which leads to
relevant results for consumers. The GoTo.com service has grown to support over
6,000 advertisers bidding on over 150,000 keywords generating nearly 200,000
paid click-throughs per day. We believe that a critical mass of advertisers and
consumers supports a self-reinforcing cycle that stimulates growth in
marketplace participants and transactions.
1
<PAGE> 5
THE OFFERING
Common stock offered by
GoTo.com........................ shares
Common stock to be outstanding
after this offering........... shares
Use of proceeds................. We plan to use the proceeds from this
offering for general corporate purposes,
principally working capital, capital
expenditures and additional marketing and
sales efforts, as well as potential
acquisitions.
Proposed Nasdaq National Market
symbol........................ GOTO
This table is based on shares outstanding as of April 14, 1999. This table
excludes:
- 3,827,104 shares of common stock reserved for issuance under our 1998
stock option plan, and
- 2,000,000 shares available for issuance under our 1999 employee stock
purchase plan.
This table also assumes that the underwriters do not exercise the option
granted by GoTo.com to purchase additional shares in the offering. See
"Underwriting."
2
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes the statement of operations and balance
sheet data for our business. For a more detailed explanation of these financial
data, see "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements
located elsewhere in this prospectus. The pro forma as adjusted balance sheet
data reflects the following assumptions:
- The receipt of approximately $25 million in proceeds from the issuance of
3,628,447 shares of preferred stock on April 14, 1999.
- The conversion of all outstanding shares of preferred stock including the
preferred stock issued on April 14, 1999.
- The sale of shares of our common stock in this offering at an
offering price of $ per share after deducting underwriting
discounts, commissions and estimated offering expenses and the
application of the net proceeds therefrom. See "Capitalization" and "Use
of Proceeds."
- The exercise of warrants outstanding at December 31, 1998 to purchase
63,272 shares of common stock.
<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS ENDED
ENDED ---------------------------------------------
DECEMBER 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1998
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ 822 $ 38 $ 19 $ 185 $ 580
Cost of revenue............................... 1,429 10 101 596 722
-------- ----- ------- ------- -------
Gross profit (loss)........................... (607) 28 (82) (411) (142)
Operating expenses:
Marketing and sales......................... 9,645 174 1,119 3,697 4,655
General and administrative(a)............... 1,670 177 253 511 729
Product development(a)...................... 1,274 210 150 302 612
Amortization of deferred compensation....... 833 269 95 311 158
-------- ----- ------- ------- -------
Total operating expenses...................... 13,422 830 1,617 4,821 6,154
-------- ----- ------- ------- -------
Loss from operations.......................... (14,029) (802) (1,699) (5,232) (6,296)
Interest income, net........................ 316 1 48 139 128
-------- ----- ------- ------- -------
Loss before provision for income taxes........ (13,713) (801) (1,651) (5,093) (6,168)
Provision for income taxes.................... 1 -- -- -- 1
-------- ----- ------- ------- -------
Net loss...................................... $(13,714) $(801) $(1,651) $(5,093) $(6,169)
======== ===== ======= ======= =======
Historical basic and dilutive net loss per
share(b).................................... $ (1.33)
========
Pro forma net loss per share(b)............... $ (0.73)
========
Shares used to compute historical basic and
dilutive loss per share(b).................. 10,305
Shares used to compute pro forma loss per
share(b).................................... 18,722
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $16,357
Working capital......................................... 15,215
Total assets............................................ 19,969
Long term capital lease obligations..................... 183
Total stockholders' equity.............................. 16,397
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non-cash charges totaling $427,000 related to common stock and warrants as
compensation to non-employees during the twelve months ended December 31,
1998.
(b) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
3
<PAGE> 7
RISK FACTORS
You should carefully consider the risks described below before buying
shares in this offering.
WE HAVE A LIMITED OPERATING HISTORY.
GoTo.com was founded in September of 1997 and has a limited operating
history. We launched a proof-of-concept version of our service in December 1997.
Our "pay-for-performance" model was announced in February 1998, and, following
further proof-of-concept testing, the service was officially launched on June 1,
1998. An investor in our common stock must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets. These risks include our:
- complete dependence on services with only limited market acceptance;
- need to develop and upgrade our infrastructure, including internal
controls, transaction processing systems, data storage and retrieval
systems and Web site;
- competition;
- need to manage changing operations, including our recent implementation
of a new financial and accounting system;
- reliance upon the Internet for commerce;
- reliance upon general economic conditions;
- reliance upon strategic relationships; and
- dependence upon and need to hire key personnel.
Because we have recently begun operations, it is difficult to evaluate our
business and our prospects. Our revenue and income potential is unproven and our
business model is still emerging. We cannot assure you that the GoTo.com service
will retain its existing, or attract new, advertisers, consumers and network
affiliates, achieve significant additional revenues or improve operating margins
in future periods. There can be no assurance that GoTo.com's service will
achieve commercial success.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.
We have not achieved profitability. We expect to incur net losses for the
foreseeable future and may never become profitable. We incurred a net loss of
approximately $13.7 million for the year ended December 31, 1998 and as of
December 31, 1998, we had an accumulated deficit of $13.8 million.
Our limited operating history makes it difficult to forecast our future
operating results. Although our revenue has grown in recent quarters, we cannot
be certain that this growth will continue. We expect to continue to increase our
marketing and sales, product development and general and administrative
expenses. As a result we will need to generate significant additional revenue
and/or raise additional funds to achieve profitability. If we do achieve
profitability, we cannot be certain that we will sustain or increase it. For
more detailed information regarding our operating results and financial
condition, please see
4
<PAGE> 8
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE
OF MANY FACTORS, AND ANY OF THESE COULD ADVERSELY AFFECT OUR STOCK PRICE.
We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of our future performance. It is likely that in some
future quarter our operating results may be below the expectations of public
market analysts and investors and, as a result of these or other factors, the
price of our common stock may fall. Our operating results have varied widely in
the past, and we expect that they will continue to vary significantly from
quarter-to-quarter due to a number of factors, including:
- demand for our online services by advertisers and consumers, including
the number of searches performed by consumers and the rate at which they
click-through to paid search listing advertisements;
- prices paid by advertisers using the GoTo.com service, which are not
determined by GoTo.com;
- our costs of attracting consumers to the GoTo.com Web site, including
costs of receiving exposure on third-party Web sites and advertising
costs;
- costs related to forming strategic relationships;
- loss of strategic relationships;
- the mix of paying vs. non-paying search results on the GoTo.com service;
- our ability to significantly increase our distribution channels;
- competition;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
- costs and delays in introducing new GoTo.com services and improvements to
existing services;
- changes in the growth rate of Internet usage and acceptance by consumers
of electronic commerce;
- technical difficulties, system failures or Internet downtime;
- government regulations related to the Internet;
- our ability to upgrade and develop our information technology systems and
infrastructure;
- costs related to acquisitions of technologies or businesses; and
- general economic conditions, as well as those specific to the Internet
and related industries.
As a result of our limited operating history, it is difficult to accurately
forecast our revenue, and we have limited meaningful historical financial data
upon which to base planned operating expenses. We plan to significantly increase
our operating expenses to
5
<PAGE> 9
expand our marketing and sales operations, broaden our customer support
capabilities and fund greater levels of product development. We base our current
and future expense levels on our operating plans and estimates of future
revenue, and our expenses are relatively fixed. Revenue and operating results
are difficult to forecast because they generally depend upon the volume of the
searches conducted on our service, the amounts bid by advertisers for keyword
search listings on the service and the number of advertisers that bid on the
service, none of which are under our control. As a result, we may be unable to
adjust our spending in a timely manner to compensate for any unexpected revenue
shortfall. We also may be unable to increase our spending and expand our
operations in a timely manner to adequately meet user demand to the extent it
exceeds our expectations.
OUR SUCCESS DEPENDS UPON ACHIEVING A CRITICAL MASS OF ADVERTISERS AND CONSUMERS.
Our success is dependent upon achieving significant market acceptance of
our service by advertisers and consumers. Our service has achieved only limited
market acceptance to date. Internet advertising in general is at an early stage
of development. Most potential advertisers have only limited experience
advertising on the Internet and have not devoted a significant portion of their
advertising expenditures to Internet advertising. Advertising through priority
placement on our search service in particular has been introduced only recently,
and we cannot predict the level of its acceptance as an advertising medium, even
if we achieve initial market acceptance. Although we believe that our service
offers a cost-effective advertising solution, our competitors and potential
competitors may offer more cost-effective advertising solutions, which could
damage our business. In addition, although we believe our service provides more
relevant search results than those provided by traditional search methods, our
service may not achieve significant acceptance by consumers. Among other things,
because our service prioritizes search results based on advertising bids
associated with keywords rather than on algorithmic or other traditional search
and retrieval technologies, consumers may perceive our results to be less
objective than those provided by traditional search methods. Failure to achieve
and maintain a critical mass of advertisers and consumers would seriously harm
our business.
WE ARE CURRENTLY DEPENDENT UPON ONLINE MARKETING PARTNERS, AND OUR FUTURE
SUCCESS IS DEPENDENT UPON FURTHER DEVELOPING AND ENHANCING OUR SEARCH
SYNDICATION NETWORK.
We depend on traffic from a limited number of sources, particularly
Microsoft Corporation, Netscape Communications Corp. (a wholly owned subsidiary
of America Online) and Dogpile and a limited number of other third-party Web
sites that participate in our Search Syndication Network. Although sources of
consumer traffic to our service fluctuate, in any given month we typically
depend upon one or a few of these sources for a significant majority of traffic
and searches conducted on our service. We generally obtain traffic from these
sources pursuant to short term agreements. There can be no assurance that we
will be successful in renewing any of these agreements on commercially
acceptable terms. We also believe that our future success in penetrating our
target markets depends in part on our ability to further develop and maintain
relationships with network affiliates in our Search Syndication Network. These
network affiliates provide their users with GoTo.com search capabilities on
their sites or direct their traffic to our Web site. We believe these
relationships are important in order to facilitate broad market acceptance of
our service and enhance our sales. Our future ability to attract consumers to
our service is dependent upon the growth of our Search Syndication Network,
which is new and unproven. If we are unable to extend or obtain new agreements
or arrangements for traffic
6
<PAGE> 10
on commercially acceptable terms or expand our Search Syndication Network, our
business will be damaged.
WE ARE DEPENDENT UPON OTHER STRATEGIC PARTNERS.
GoTo.com also depends on significant non-distribution related partnerships.
We rely on Inktomi Corporation as the sole source of supplemental search results
to our paid results, which constitute a very high percentage of the search
results displayed by GoTo.com. We also rely on 24/7 Media, Inc. to provide
advertising sales for us as well as for some participants in our Search
Syndication Network. The loss of either of these key relationships could damage
our business. In addition, our contract with Inktomi Corporation expires in
April 2000 and our contract with 24/7 Media expires in March 2001. There can be
no assurance that we will be successful in renewing these contracts on
commercially acceptable terms. If we are unable to develop future key
relationships or maintain and enhance our existing relationships, our business
will be damaged.
OUR INDUSTRY IS HIGHLY COMPETITIVE, AND WE CANNOT ASSURE YOU THAT WE WILL BE
ABLE TO COMPETE EFFECTIVELY.
The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. GoTo.com currently or potentially competes
with many other providers of Web directories, search and information services as
well as traditional media for consumer attention and advertising expenditures.
We expect competition to intensify in the future. Barriers to entry may not be
significant, and current and new competitors may be able to launch new Web sites
at a relatively low cost. Accordingly, we believe that our success will depend
heavily upon achieving significant market acceptance before our competitors and
potential competitors introduce competing services.
GoTo.com competes with online services, other Web sites and advertising
networks, as well as traditional offline media such as television, radio and
print for a share of advertisers' total advertising budgets. We believe that the
number of companies selling Web-based advertising and the available inventory of
advertising space has recently increased substantially. Accordingly, GoTo.com
may face increased pricing pressure for the sale of advertisements and direct
marketing opportunities, which could adversely affect our business and operating
results.
GoTo.com also competes with providers of Web directories, search and
information services, all of whom offer advertising, including, among others,
America Online, Inc. (AOL.com, NetFind and Netscape Netcenter), AskJeeves, Inc.,
CNET, Inc. (Snap), Excite, Inc. (including WebCrawler and Magellan), Inktomi
Corporation, LookSmart, Ltd., Lycos, Inc. (including HotBot), Microsoft
Corporation (LinkExchange, Inc. and msn.com), The Walt Disney Company/Infoseek
Corporation (including the Go Network) and Yahoo! Inc. In addition, we expect
that other companies will offer directly competing services in the future. For
example, we expect AltaVista, a division of Compaq Computer Corporation, to
offer such a service.
Most providers of Web directories, search and information services offer
additional features and content that GoTo.com has elected not to offer. Also,
many of these competitors, as well as potential entrants into our market, have
longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater resources to promotion and Web site and
7
<PAGE> 11
systems development than we can. In addition, as the use of the Internet and
other online services increases, larger, well-established and well-financed
entities may continue to acquire, invest in or form joint ventures with
providers of Web directories, search and information services or advertising
solutions, and existing providers of Web directories, search and information
services or advertising solutions may continue to consolidate. In addition,
providers of Internet browsers and other Internet products and services who are
affiliated with providers of Web directories and information services in
competition with the GoTo.com service may more tightly integrate these
affiliated offerings into their browsers or other products or services. Any of
these trends would increase the competition we face and could adversely affect
our business and operating results.
WE HAVE CAPACITY CONSTRAINTS AND SYSTEM DEVELOPMENT RISKS THAT COULD DAMAGE OUR
CUSTOMER RELATIONS OR INHIBIT OUR POSSIBLE GROWTH, AND WE NEED TO EXPAND OUR
MANAGEMENT SYSTEMS AND CONTROLS.
Our success, in particular our ability to provide high quality customer
service, largely depends on the efficient and uninterrupted operation of our
computer and communications systems in order to accommodate any significant
increases in the numbers of consumers and advertisers using our service. Our
success also depends upon our ability to rapidly expand our
transaction-processing systems and network infrastructure without any systems
interruptions in order to accommodate any significant increases in use of our
service. We believe that our current transaction-processing systems and network
infrastructure are insufficient to support our future growth. Although we are
enhancing and expanding our transaction-processing systems and network
infrastructure, we have experienced periodic systems interruptions and
infrastructure failures, which we believe will continue to occur. In the past,
limitations of our technology infrastructure have prevented us from maximizing
our business opportunities. We do not believe that our data repositories,
financial systems and other technology resources are secure from security
breaches or sabotage. In addition, many of our software systems are
custom-developed and we rely on our employees and certain third-party
contractors to develop and maintain these systems. If certain of these employees
or contractors become unavailable to us, we may experience difficulty in
improving and maintaining these systems. Furthermore, we expect that we will
continue to be required to manage multiple relationships with various software
and equipment vendors whose technologies may not be compatible, as well as
relationships with other third parties to maintain and enhance our technology
infrastructure. Our failure to achieve or maintain high capacity data
transmission without system downtime and achieve improvements to our transaction
processing systems and network infrastructure would adversely affect our
business and results of operations.
In addition, our growth has placed, and our anticipated future growth will
continue to place, a significant strain on our management systems and controls.
Our current management systems and controls are inadequate to support our
anticipated growth. We expect that we will need to continue to improve our
financial and managerial controls and reporting systems and procedures.
WE ARE IN THE PROCESS OF IMPLEMENTING NEW FINANCIAL AND ACCOUNTING SYSTEMS WHICH
MAY NOT WORK AS EXPECTED.
We are in the process of implementing new financial and accounting
reporting software. In connection with this implementation, we have encountered
difficulties integrating the new software with certain of our other information
systems. Additionally,
8
<PAGE> 12
we are in the process of upgrading certain of our other information systems and
internal controls. If we grow rapidly, we will face additional challenges in
upgrading and maintaining these systems. If we fail to successfully implement
and integrate these new financial reporting and information systems, or we are
not able to scale these systems with our growth, we may not have adequate,
accurate or timely financial information. Failure to have adequate, accurate or
timely financial information would harm our business and could lead to
volatility in our stock price.
OUR ADVERTISING REVENUE IS CONCENTRATED AMONG A LIMITED NUMBER OF ADVERTISERS.
Although no advertiser accounted for more than 10% of our revenue for the
quarter ended December 31, 1998, a significant majority of our total revenue is
derived from a small proportion of our advertisers. We believe that a
substantial amount of revenue from advertising sales in any given future period
may come from a relatively small number of advertisers. If our major advertisers
were to substantially cut back advertising purchases or stop using our services,
our business would be seriously harmed. We do not have formal contractual
relationships with any of our advertisers. As a result, we cannot assure you
that any of our advertisers will purchase advertising from us in the future.
CONTINUED ADOPTION OF THE INTERNET AS A METHOD OF CONDUCTING BUSINESS IS
NECESSARY FOR OUR FUTURE GROWTH.
The widespread acceptance and adoption of the Internet by traditional
businesses for conducting business and exchanging information is likely only if
the Internet provides these businesses with greater efficiencies and
improvements. The failure of the Internet to continue to develop as a commercial
and business medium would adversely affect our business.
FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT OUR FUTURE GROWTH.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, the
Internet's infrastructure may not be able to support these demands and its
performance and reliability may decline. If outages or delays on the Internet
occur frequently or increase in frequency, overall Web usage, including usage of
our Web site in particular, could grow more slowly or decline. Our ability to
increase the speed and scope of our services to users is ultimately limited by
and dependent upon the speed and reliability of both the Internet and our
advertisers' and consumers' internal networks. Consequently, the emergence and
growth of the market for our services depends upon improvements being made to
the entire Internet as well as to our individual advertisers' and consumers'
networking infrastructures to alleviate overloading and congestion.
INCREASED SECURITY RISKS OF ONLINE COMMERCE MAY DETER FUTURE USE OF OUR
SERVICES.
Concerns over the security of transactions conducted on the Internet and
the privacy of consumers may also inhibit the growth of the Internet and other
online services generally, and online commerce in particular. Our failure to
prevent security breaches could significantly harm our business and results of
operations. We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography, or other developments will not result
in a compromise or breach of the algorithms we use to protect our transaction
data. Anyone who is able to circumvent our security measures could
9
<PAGE> 13
misappropriate proprietary information, cause interruptions in our operations or
damage our brand and reputation. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Any well-publicized compromise of security could deter people from
using the Internet to conduct transactions that involve transmitting
confidential information or downloading sensitive materials, which would
adversely affect the business of our advertisers and, accordingly, our business.
WE FACE THE RISKS OF SYSTEM FAILURES.
We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our services at an alternate site. A disaster could
severely damage our business and results of operations because our services
could be interrupted for an indeterminate length of time. Our operations depend
upon our ability to maintain and protect our computer systems, all of which are
located in our principal headquarters in Pasadena, California and at an offsite
location managed by a third party in Sunnyvale, California. Pasadena and
Sunnyvale exist on or near known earthquake fault zones. Our systems and
operations are vulnerable to damage or interruption from fire, floods,
earthquakes, power loss, telecommunications failures, break-ins, sabotage and
similar events. The occurrence of a natural disaster or unanticipated problems
at our principal headquarters or at the third-party facility could cause
interruptions or delays in our business, loss of data or render us unable to
provide our services. In addition, failure by the third-party facility to
provide the data communications capacity required by us, as a result of human
error, natural disaster or other operational disruptions, could cause
interruptions in our service. The occurrence of any or all of these events could
adversely affect our reputation, brand and business.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS, AND
ANY FAILURE TO MANAGE THIS GROWTH COULD DAMAGE OUR BUSINESS.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations. These expansion efforts could be expensive and put a
strain on management, and, if we do not manage growth properly, it could
adversely affect our business. Our headcount has grown and will continue to grow
substantially. Prior to February 1998, we had no employees, although a small
number of personnel with Bill Gross' idealab! and certain consultants were
performing services for us. At March 31, 1999, we had a total of 75 employees.
We will need to expand our infrastructure, which will include hiring certain key
employees, including without limitation, key employees in marketing and
technology development. Hiring such employees has historically been difficult,
and we cannot assure you that we will be able to successfully attract and retain
a sufficient number of qualified personnel.
OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS,
AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.
Our future success depends upon the continued service of our executive
officers and other key technology, marketing, sales and support personnel. None
of our officers or key employees is bound by an employment agreement for any
specific term. If we lost the services of one or more of our key employees, or
if one or more of our executive officers or employees decided to join a
competitor or otherwise compete directly or indirectly with us, this could have
a significant adverse effect on our business. In particular, the services of
10
<PAGE> 14
key members of our research and development team would be difficult to replace.
We cannot assure you that we will be able to successfully retain our key
personnel or, in the event we were to lose the services of any key personnel, to
replace such personnel.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH CREDIT CARD FRAUD.
To date, we have suffered losses as a result of orders placed with
fraudulent credit card data, even though the associated financial institution
approved payment of the orders. Under current credit card practices, a merchant
is liable for fraudulent credit card transactions when, as is the case with the
transactions we process, that merchant does not obtain a cardholder's signature.
A failure to adequately control fraudulent credit card transactions would
adversely affect our business.
WE FACE RISKS OF CLAIMS FROM THIRD PARTIES FOR INTELLECTUAL PROPERTY
INFRINGEMENT THAT COULD ADVERSELY AFFECT OUR BUSINESS.
Our services operate in part by making Internet services and content
available to our users. This creates the potential for claims to be made against
us, either directly or through contractual indemnification provisions with third
parties. These claims might, for example, be made for defamation, negligence,
copyright or trademark infringement, personal injury, invasion of privacy or
other legal theories. We receive correspondence alleging some of these types of
claims from time to time. Any claims could result in costly litigation and be
time consuming to defend, divert management's attention and resources, cause
delays in releasing new or upgrading existing services or require us to enter
into royalty or licensing agreements.
Litigation regarding intellectual property rights is common in the Internet
and software industries. We expect that Internet technologies and software
products and services may be increasingly subject to third-party infringement
claims as the number of competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. There can be
no assurance that our services do not infringe the intellectual property rights
of third parties.
Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. A successful claim of infringement against us and
our failure or inability to license the infringed or similar technology could
adversely affect our business.
Our success and ability to compete are substantially dependent upon our
internally developed technology and data resources, which we protect through a
combination of copyright, trade secret and trademark law. We have no patents
issued to date on our technology.
We are aware that certain other companies are using or may have plans to
use the terms "GoTo," "Go," "Go2" and variations of these terms as part of a
company name, domain name, trademark or service mark. In addition, we have
received notice from companies claiming superior rights to marks such as these.
We cannot assure you that additional companies will not claim such superior
rights or that we will not be subject to infringement claims. A successful
infringement claim by the owner of a mark including "GoTo" or a variation could
require us to change our name, which would be expensive and disruptive to our
business. Further, despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
services,
11
<PAGE> 15
technology and other intellectual property, and we cannot be certain that the
steps we have taken will prevent any misappropriation or confusion among
consumers and advertisers.
WE ARE ENGAGED IN LITIGATION THAT COULD SERIOUSLY HARM OUR BUSINESS.
We believe that The Walt Disney Company and certain of its affiliates,
including Infoseek Corporation, are infringing our GoTo.com logo. In February
1999 we sued these companies for violating federal trademark law and engaging in
unfair competition. Our lawsuit is based on the use by these companies of a "GO"
design mark to provide Internet services, including a search engine in
connection with their "Go Network." We are seeking to prevent these companies
from using this "GO" design mark as well as other remedies. The lawsuit is at a
preliminary stage, and we cannot assure you that the outcome of this litigation
will be favorable to us. For example, we may not prevail and be able to stop
these companies from causing confusion among consumers and advertisers through
continued use of the "GO" design mark. In addition, these companies could file
counterclaims or separate lawsuits or other proceedings against us, possibly
seeking to prevent us from using the GoTo.com logo or other relief. An
unfavorable result could affect the value of or even prevent us from using the
GoTo.com logo. Even if we are successful, this litigation will be expensive to
pursue and will be distracting to our management and other employees. Any
adverse developments resulting from this litigation could seriously harm our
business.
WE MAY NOT BE ABLE TO PROTECT OUR INTERNET DOMAIN NAME.
The Internet domain name we use, "GoTo.com," is an extremely important part
of our business. The acquisition and maintenance of domain names generally are
regulated by governmental agencies and their designees. For example, in the
United States, the National Science Foundation has appointed Network Solutions,
Inc. as the current exclusive registrar for the ".com," ".net" and ".org"
generic top-level domains. The regulation of domain names in the United States
and in foreign countries is subject to change in the near future. Such changes
in the United States are expected to include a transition from the current
system to a system that is controlled by a non-profit corporation and the
creation of additional top-level domains. Governing bodies may establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we may be unable
to acquire or maintain relevant domain names in all countries in which we
conduct business. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of our trademarks and other proprietary rights. Third parties have acquired
domain names that include "goto" or varieties thereof both in the United States
and elsewhere.
WE MAY NEED ADDITIONAL CAPITAL WHICH COULD DILUTE THE OWNERSHIP INTEREST OF
INVESTORS.
We require substantial working capital to fund our business. Since our
inception, we have experienced negative cash flow from operations and expect to
experience significant negative cash flow from operations in the future. We
currently anticipate that the net proceeds of this offering, together with our
available funds, will be sufficient to meet our anticipated needs for working
capital and capital expenditures through at least the next 12 months. However,
we may need to raise additional funds prior to the expiration of this
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<PAGE> 16
period or at a later date. If we raise additional funds through the issuance of
equity, equity-related or convertible debt securities, these securities may have
rights, preferences or privileges senior to those of the rights of our common
stock and our stockholders may experience additional dilution. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all.
POTENTIAL ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS,
DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS.
We may make investments in or acquire complementary products, technologies
and businesses. These acquisitions and investments could disrupt our ongoing
business, distract our management and employees and increase our expenses. If we
acquire a company, we could face difficulties in assimilating that company's
personnel and operations. In addition, the key personnel of the acquired company
may decide not to work for us. Acquisitions of additional services or
technologies also involve risks of incompatibility and the need for integration
into our existing services and marketing, sales and support efforts. If we
finance the acquisitions by issuing equity securities, this could dilute our
existing stockholders. Any amortization of goodwill or other assets, or other
charges resulting from the costs of these acquisitions, could adversely affect
our operating results.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR INTERNAL OPERATING SYSTEMS OR OUR SERVICES
COULD ADVERSELY AFFECT OUR BUSINESS.
We cannot assure you that we will not experience unanticipated negative
consequences from year 2000 problems, including material costs caused by
undetected errors or defects in the technology used in our internal systems.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
the year 2000 and 21st century dates from other 20th century dates. As a result,
computer systems and/or software products used by many companies may need to be
upgraded to solve this problem.
Our online services and their associated and supporting tools, Web sites
and infrastructure were designed and developed to be year 2000 compliant. Our
internal systems, including those used to deliver our services, utilize
third-party hardware and software. We have begun the process of contacting the
vendors of these infrastructure products in order to gauge their year 2000
compliance. Based on vendors' representations received thus far, we believe that
the third-party hardware and software we use is year 2000 compliant, although we
have not heard from all of these vendors.
If we discover that certain of our services need modification, or certain
of our third-party hardware and software is not year 2000 compliant, we will try
to make modifications to our services and systems on a timely basis. We do not
believe that the cost of these modifications will materially affect our
operating results. However, we cannot assure you that we will be able to modify
these products, services and systems in a timely, cost-effective and successful
manner and the failure to do so could have a material adverse effect on our
business and operating results.
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<PAGE> 17
SPENDING BY OUR ADVERTISERS TO EVALUATE AND ADDRESS YEAR 2000 COMPLIANCE COULD
RESULT IN LOWER DEMAND FOR OUR SERVICES.
Year 2000 compliance issues also could cause a significant number of
companies, including our current advertisers, to reevaluate their current system
needs and, as a result, consider switching to other systems and means of
advertising. This could result in a material adverse effect on our business,
operating results and financial condition. Also, during the next six months
there is likely to be an increased advertiser focus on addressing year 2000
compliance issues, creating the risk that advertisers may reallocate
expenditures to fix year 2000 problems of existing systems. Although we have not
experienced these effects to date, if advertisers defer Internet advertising and
commerce and related services because of such a reallocation, it would adversely
affect our business and operating results.
OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE AND OUR FUTURE SUCCESS WILL
DEPEND ON OUR ABILITY TO MEET THE CHANGING NEEDS OF OUR INDUSTRY.
To remain competitive, we must continue to enhance and improve the
functionality and features of our online services. The Internet and the online
advertising industry are rapidly changing. If competitors introduce new products
and services embodying new technologies, or if new industry standards and
practices emerge, our existing services, technology and systems may become
obsolete. Our future success will depend on our ability to do the following:
- license and internally develop leading technologies useful in our
business;
- enhance our existing services;
- develop new services and technologies that address the increasingly
sophisticated and varied needs of prospective consumers; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
Developing our services and other proprietary technology entails
significant technical and business risks, as well as substantial costs. We may
use new technologies ineffectively, or we may fail to adapt our services,
transaction-processing systems and network infrastructure to user requirements
or emerging industry standards. If we face material delays in introducing new
services, products and enhancements, our users may forego the use of our
services and use those of our competitors.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES.
There are currently few laws or regulations directly applicable to access
to, or commerce on, the Internet. Due to the increasing popularity and use of
the Internet, it is possible that laws and regulations may be adopted, covering
issues such as user privacy, defamation, pricing, taxation, content regulation,
quality of products and services, and intellectual property ownership and
infringement. Such legislation could expose GoTo.com to substantial liability as
well as dampen the growth in use of the Internet, decrease the acceptance of the
Internet as a communications and commercial medium, or require GoTo.com to incur
significant expenses in complying with any new regulations. The European Union
has recently adopted privacy and copyright directives that may impose additional
burdens and costs on international operations. In addition, several
telecommunications carriers, including America's Carriers' Telecommunications
Association, are seeking
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<PAGE> 18
to have telecommunications over the Internet regulated by the Federal
Communications Commission, or FCC, in the same manner as other
telecommunications services. Because the growing popularity and use of the
Internet has burdened the existing telecommunications infrastructure and many
areas with high Internet usage have begun to experience interruptions in phone
services, local telephone carriers, such as Pacific Bell, have petitioned the
FCC to regulate the Internet and to impose access fees. Increased regulation or
the imposition of access fees could substantially increase the costs of
communicating on the Web, potentially decreasing the demand for our service. A
number of proposals have been made at the federal, state and local level that
would impose additional taxes on the sale of goods and services through the
Internet. Such proposals, if adopted, could substantially impair the growth of
electronic commerce and could adversely affect us. Also, Congress recently
passed (and the President has signed into law) the Digital Millenium Copyright
Act, which is intended to reduce the liability of online service providers for
listing or linking to third-party Web sites that include materials that infringe
copyrights. Congress also recently passed (and the President has signed into
law) the Children's Online Protection Act and the Children's Online Privacy Act,
which will restrict the distribution of certain materials deemed harmful to
children and impose additional restrictions on the ability of online services to
collect user information from minors. Further, Congress recently passed (and the
President has signed into law) the Protection of Children from Sexual Predators
Act, which mandates that electronic communication service providers report facts
or circumstances from which a violation of child pornography laws is apparent.
GoTo.com is currently reviewing these pieces of legislation, and cannot
currently predict the effect, if any, that this legislation will have on our
business. There can be no assurance that this legislation will not impose
significant additional costs on our business or subject GoTo.com to additional
liabilities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, copyright, defamation, obscenity
and personal privacy is uncertain. GoTo.com may be subject to claims that our
services violate such laws. Any new legislation or regulation in the United
States or abroad or the application of existing laws and regulations to the
Internet could damage our business.
Due to the global nature of the Internet, it is possible that the
governments of other states and foreign countries might attempt to regulate its
transmissions or prosecute GoTo.com for violations of their laws. GoTo.com might
unintentionally violate such laws. Such laws may be modified, or new laws may be
enacted, in the future. Any such development could damage our business.
WE MAY INCUR LIABILITIES FOR THE ACTIVITIES OF USERS OF OUR SERVICE.
The law relating to the liability of providers of online services for
activities of their users is currently unsettled. We are aware that certain of
our advertisers' Web sites offer or contain information about alcohol, tobacco,
firearms, adult material and other products, services and information that may
be subject to regulation by local, state or federal authorities. In addition,
our advertisers' Web sites may contain text, images or information that could
infringe third-party copyrights, trademarks or other intellectual property
rights. We cannot assure you that GoTo.com will successfully avoid civil or
criminal liability for unlawful activities carried out by users of our service.
The imposition upon GoTo.com of potential liability for unlawful activities of
users of our service could require us to implement measures to reduce our
exposure to such liability, which may require us, among other things, to spend
substantial resources or to discontinue certain service offerings. Any costs
incurred as a result of such liability or asserted liability could damage our
business.
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<PAGE> 19
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Our management can spend
most of the proceeds from this offering in ways with which the stockholders may
not agree. We cannot predict that the proceeds will be invested to yield a
favorable return. See "Use of Proceeds."
OUR SECURITIES HAVE NO PRIOR MARKET, AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
Before this offering, there has not been a public market for our common
stock. The initial public offering price has been determined by negotiations
between GoTo.com and the representatives of the underwriters. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price. The trading market price of our common stock may decline below
the initial public offering price. In addition, an active public market for
GoTo.com's common stock may not develop or be sustained after this offering.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
After this offering, we will have outstanding shares of
common stock, based upon shares outstanding as of April 14, 1999 and including
the shares offered hereby (assuming no exercise of the underwriters'
over-allotment option). The remaining 38,238,352 shares of common stock
outstanding after this offering will be available for sale in the public market
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
<S> <C>
32,659,264 180 days after the date of this prospectus
5,579,088 Between December 1999 and April 2000
</TABLE>
The above table assumes the effectiveness of certain lock-up arrangements
with the underwriters under which the stockholders have agreed not to sell or
otherwise dispose of their shares of common stock. Most of the shares that will
be available for sale after the 180th day after the date of this prospectus or
afterwards will be subject to certain volume limitations because they are held
by affiliates of GoTo.com. In addition, we cannot assure you that the
underwriters will not remove these lock-up restrictions prior to 180 days after
the offering without prior notice.
If our stockholders sell substantial amounts of common stock in the public
market, including shares issued upon the exercise of outstanding options, the
market price of our common stock could fall. See "Shares Eligible for Future
Sale" and "Underwriting."
WE WILL BE CONTROLLED BY OUR CURRENT STOCKHOLDERS, EVEN AFTER THE OFFERING.
idealab! Holdings, L.L.C., idealab! Capital Management I, LLC, Draper
Fisher Jurvetson, Moore Capital Management, Inc. and Global Retail Partners,
L.P. and entities affiliated with them will, in the aggregate, beneficially own
approximately % of our outstanding common stock following the completion of
this offering. These stockholders, if acting together, would be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions. See "Principal Stockholders."
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<PAGE> 20
OUR CHARTER DOCUMENTS AND CHANGE OF CONTROL SEVERANCE AGREEMENTS WITH OUR
MANAGEMENT WILL MAKE IT MORE DIFFICULT TO ACQUIRE US.
Provisions of our Amended and Restated Certificate of Incorporation, Bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock." In addition, in April 1999, we entered into Change of Control
Severance Agreements with members of our senior management providing for certain
benefits, including acceleration of option vesting, to these members if they are
terminated other than for cause following an acquisition of GoTo.com. These
agreements and charter documents could make us less attractive to a third party
who may want to acquire us.
WE DO NOT INTEND TO DECLARE DIVIDENDS.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy."
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN.
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify these
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of the Internet, Internet advertising and online commerce
markets and spending. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described above and elsewhere in this prospectus.
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<PAGE> 21
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
offered by us are estimated to be $64 million after deducting the underwriting
discount, estimated offering expenses and assuming no exercise of the
underwriters' over-allotment option to purchase shares from us.
We expect to use the net proceeds for general corporate purposes,
principally working capital, capital expenditures and additional marketing and
sales efforts. In addition, we may use a portion of the net proceeds to acquire
complementary products, technologies or businesses; however, we currently have
no commitments or agreements for such acquisitions and are not involved in any
negotiations related to such acquisitions. We intend to invest the net proceeds
of this offering in interest-bearing, investment-grade securities until they are
used.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
CORPORATE INFORMATION
Our principal executive offices are located at 140 West Union Street,
Pasadena, California 91103, and our telephone number is (626) 685-5600.
GoTo.com owns common law rights in the United States in the service marks
GOTO.COM, GOTO, the GOTO.COM logo, SEARCH MADE SIMPLE and other marks. In
addition, GoTo.com has applied for federal registrations of these four marks and
other marks, including PAY FOR PERFORMANCE, TARGETED PAY-FOR-PERFORMANCE
ADVERTISING and SEARCH SYNDICATION NETWORK. All other trademarks or service
marks appearing in this prospectus are trademarks or service marks of others.
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<PAGE> 22
CAPITALIZATION
The following table sets forth the following information:
- the actual capitalization of GoTo.com as of December 31, 1998;
- the pro forma capitalization of GoTo.com after giving effect to the sale
of 3,628,447 shares of preferred stock for an aggregate purchase price of
approximately $25 million on April 14, 1999, conversion of all
outstanding shares of convertible preferred stock into 23,121,594 shares
of common stock and the exercise of warrants outstanding as of December
31, 1998 to purchase 63,272 shares of common stock; and
- the pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at the estimated initial public
offering price of $ per share in this offering, less
underwriting discounts and commissions and estimated offering expenses
payable by GoTo.com.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................... $ 16,357 $ 41,357
======== ========
Long-term capital lease obligations......... $ 183 $ 183
Stockholders' equity:
Convertible preferred stock, issuable in
series, $0.0001 par value, 20,187,401
shares authorized, 19,493,147 shares
issued and outstanding, actual;
10,000,000 shares authorized and no
shares issued and outstanding, pro
forma and pro forma as adjusted........ 28,645 --
Common stock, $0.0001 par value;
45,000,000 shares authorized,
10,443,862 shares issued and
outstanding, actual; 200,000,000 shares
authorized, 33,565,456 shares issued
and outstanding, pro forma; and
200,000,000 shares authorized,
shares issued and
outstanding, pro forma as adjusted..... 1 3
Additional paid-in capital................ 3,172 56,815
Deferred compensation.................. (1,587) (1,587)
Accumulated deficit.................... (13,834) (13,834)
-------- -------- -------
Total stockholders' equity............. 16,397 41,397
-------- -------- -------
Total capitalization........................ $ 16,580 $ 41,580
======== ======== =======
</TABLE>
This table excludes shares of common stock reserved for issuance under
GoTo.com's stock option and employee stock purchase plans, including 5,000,471
shares subject to outstanding options as of December 31, 1998. Upon the closing
of this offering there will be an aggregate of 10,500,000 shares of common stock
reserved under these plans.
See "Management -- Incentive Stock Plans," "Description of Capital Stock"
and Note 3 of Notes to Financial Statements.
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<PAGE> 23
DILUTION
The pro forma net tangible book value of our common stock on December 31,
1998 was $41.4 million, or approximately $1.23 per share. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities, assuming the issuance of 3,628,447 shares of Series D
preferred stock on April 14, 1999 occurred on December 31, 1998, divided by the
number of shares of common stock outstanding, after giving effect to the
conversion of all preferred stock including the Series D preferred stock.
Dilution in net pro forma tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately afterwards. After giving effect to our
sale of shares of common stock offered by this prospectus at an estimated
price of $ per share and after deducting the underwriting discount and
estimated offering expenses payable by us, our pro forma net tangible book value
would have been $ , or approximately $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $ per share to new investors.
<TABLE>
<S> <C> <C>
Estimated public offering price per share................... $
Pro forma net tangible book value per share as of
December 31, 1998..................................... $ 1.23
Increase per share attributable to new investors....... $
As adjusted pro forma net tangible book value per share
after the offering........................................ $
Dilution in pro forma net tangible book value per share to
new investors............................................. $
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. As of December 31, 1998, there were options
and warrants outstanding to purchase a total 5,063,743 shares of common stock
with an average exercise price of $0.17 per share. See Notes 3 and 4 of Notes to
Financial Statements. The exercise of outstanding options and warrants having an
exercise price less than the offering price would increase the dilutive effect
to new investors.
The following table sets forth, as of December 31, 1998, the differences
between the number of shares of common stock purchased from us, the total price
and average price per share paid by existing stockholders and by the new
investors, before deducting expenses payable by us, using the estimated public
offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 33,628,728 % $ 54,143,944 % $ 1.62
New investors............... % % $
------------ ------- ------------- -------
Total............. 100.0% $ 100.0%
============ ======= ============= =======
</TABLE>
The table above assumes the issuance of 3,628,447 shares of preferred stock
on April 14, 1999 and the issuance of 63,272 shares of common stock upon
exercise of warrants outstanding as of December 31, 1998.
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new public investors will be increased to or
approximately % of the total number of shares of our common stock
outstanding after this offering.
20
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements appearing elsewhere in this prospectus.
The statement of operations data set forth below for the period from September
15, 1997 (inception) to December 31, 1997 and the year ended December 31, 1998,
and the balance sheet data at December 31, 1997 and 1998 are derived from our
audited financial statements included elsewhere in this prospectus. Our
quarterly statement of operations data set forth below is derived from our
unaudited quarterly financial statements not included elsewhere herein. In our
opinion, these unaudited financial statements have been prepared on the same
basis as our audited financial statements and reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of our results of operations and financial position for these
periods. The historical results are not necessarily indicative of results to be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
INCEPTION TO TWELVE MONTHS ENDED MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1998 1998 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................ $ 22 $ 822 $ 38 $ 19 $ 185 $ 580
Cost of revenue........................ 6 1,429 10 101 596 722
------ -------- ----- ------- ------- -------
Gross profit (loss).................... 16 (607) 28 (82) (411) (142)
Operating expenses:
Marketing and sales.................. 65 9,645 174 1,119 3,697 4,655
General and administrative(a)........ 24 1,670 177 253 511 729
Product development(a)............... 46 1,274 210 150 302 612
Amortization of deferred
compensation....................... -- 833 269 95 311 158
------ -------- ----- ------- ------- -------
Total operating expenses............... 135 13,422 830 1,617 4,821 6,154
------ -------- ----- ------- ------- -------
Loss from operations................... (119) (14,029) (802) (1,699) (5,232) (6,296)
Interest income, net................. -- 316 1 48 139 128
------ -------- ----- ------- ------- -------
Loss before provision for income
taxes................................ (119) (13,713) (801) (1,651) (5,093) (6,168)
Provision for income taxes............. 1 1 -- -- -- 1
------ -------- ----- ------- ------- -------
Net loss............................... $ (120) $(13,714) $(801) $(1,651) $(5,093) $(6,169)
====== ======== ===== ======= ======= =======
Historical basic and dilutive loss per
share(b)............................. $(0.01) $ (1.33)
====== ========
Pro forma net loss per share(b)........ $ (0.73)
========
Shares used to compute historical basic
and dilutive loss per share(b)....... 9,869 10,305
Shares used to compute pro forma loss
per share(b)......................... 18,722
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 87 $16,357
Working capital......................................... 18 15,215
Total assets............................................ 214 19,969
Long term capital lease obligations..................... -- 183
Total stockholders' equity.............................. 123 16,397
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non-cash charges totaling $427,000 related to common stock and warrants as
compensation to non-employees during the twelve months ended December 31,
1998.
(b) See Note 1 of Notes to the Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements, the accuracy of which
involve risks and uncertainties. We use words such as "anticipates," "believes,"
"plans," "expects," "future," "intends" and similar expressions to identify
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of the Internet, Internet advertising and online commerce
markets and spending. Prospective investors should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. GoTo.com's actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by GoTo.com described in "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
GoTo.com has pioneered an online marketplace where any participating
advertiser can bid in an ongoing auction for introductions to self-qualified,
prospective consumers. GoTo.com improves a consumer's ability to quickly and
easily find relevant search listings for advertisers of information, products
and services while also providing advertisers with a cost-effective way to
target potential consumers. In addition, GoTo.com outsources its search service
to destination Web sites as part of its Search Syndication Network. GoTo.com was
incorporated in September of 1997 and has a limited operating history. We
launched a proof-of-concept version of our search service in the fiscal year
ended December 31, 1997. Our pay-for-performance service was announced in
February 1998, and following further proof-of-concept testing, was officially
launched on June 1, 1998. GoTo.com has devoted significant resources to
launching its search service, including developing an infrastructure and
building a management team. Since June 1, 1998 the GoTo.com service has grown to
support over 6,000 advertisers bidding on over 150,000 keywords generating
nearly 200,000 paid click-throughs per day.
Our revenue consists of search listing advertisements and banner
advertisements. Search listing advertisement revenue is determined by
multiplying the number of click-throughs on paid search results by the amounts
bid for applicable keywords. Search listing revenue is recognized when earned
based on click-through activity to the extent that the advertiser has deposited
sufficient funds with us or collection is probable. Banner advertisement revenue
is recognized when earned under the terms of the contractual arrangement with
the advertiser or advertising agency, provided that collection is probable.
We believe that our search service will be more attractive to advertisers
as more consumers use it for their search needs and more attractive to consumers
as more advertisers bid for placement in our search results. A significant
component of our expenses consists of costs incurred to attract consumers to our
service. To date, we have primarily attracted consumers through relationships
with Web browsers and Web sites aggregating search results from multiple search
engines. We expect to continue to rely upon these sources for a significant
proportion of consumer searches conducted on our service. Our future success is
dependent upon reducing our consumer acquisition costs and increasing the
revenue we derive from this traffic.
We have a limited operating history on which to base an evaluation of our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development,
22
<PAGE> 26
particularly companies in new and rapidly evolving markets such as online
commerce. Such risks for us include, but are not limited to:
- an evolving and unproven business model;
- competition;
- dependence on a few sources for consumer traffic on our service;
- the absence of long-term contracts with advertisers or partners; and
- management of growth.
To address these risks, we must, among other things:
- maintain and expand our advertiser base;
- implement and successfully execute our business and marketing strategy;
- continue to develop and upgrade our technology and transaction-processing
systems;
- improve our Web site;
- provide superior customer service;
- respond to competitive developments; and
- attract, retain and motivate qualified personnel.
We cannot assure you that we will be successful in addressing such risks,
and our failure to do so could have a material adverse effect on our business,
prospects, financial condition and results of operations.
As a result of our limited operating history, it is difficult to accurately
forecast our revenue, and we have limited meaningful historical financial data
upon which to base planned operating expenses. We plan to significantly increase
our operating expenses to expand our marketing and sales operations, broaden our
customer support capabilities and fund greater levels of product development. We
base our current and future expense levels on our operating plans and estimates
of future revenue, and our expenses are relatively fixed. Revenue and operating
results are difficult to forecast because they generally depend upon the volume
of the searches conducted on our service, the amounts bid by advertisers for
keyword search listings on the service and the number of advertisers that bid on
the service, none of which are under our control. As a result, we may be unable
to adjust our spending in a timely manner to compensate for any unexpected
revenue shortfall. We also may be unable to increase our spending and expand our
operations in a timely manner to adequately meet user demand to the extent it
exceeds our expectations.
23
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth the results of operations for GoTo.com on a
quarterly basis for the twelve months ended December 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue................................ $ 38 $ 19 $ 185 $ 580
Cost of revenue........................ 10 101 596 722
----- ------- ------- -------
Gross profit (loss).................... 28 (82) (411) (142)
Operating expenses:
Marketing and sales.................. 174 1,119 3,697 4,655
General and administrative(a)........ 177 253 511 729
Product development(a)............... 210 150 302 612
Amortization of deferred
compensation...................... 269 95 311 158
----- ------- ------- -------
Total operating expenses............... 830 1,617 4,821 6,154
----- ------- ------- -------
Loss from operations................... (802) (1,699) (5,232) (6,296)
Interest income, net................. 1 48 139 128
----- ------- ------- -------
Loss before provision for income
taxes................................ (801) (1,651) (5,093) (6,168)
Provision for income taxes............. -- -- -- 1
----- ------- ------- -------
Net loss............................... $(801) $(1,651) $(5,093) $(6,169)
===== ======= ======= =======
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non cash charges totaling $427,000 related to common stock and warrants as
compensation to non-employees during the twelve months ended December 31,
1998.
QUARTERLY RESULTS OF OPERATIONS
REVENUE
Revenue for the first quarter of 1998 was attributable to banner revenue
generated during an early proof-of-concept version of our Web site, which was
introduced during fiscal 1997 and continued into the first quarter of 1998.
GoTo.com officially launched its site on June 1, 1998. Revenues declined in the
second quarter of 1998 as a result of our de-emphasis of sales of banner
advertising during this period in favor of developing our search listing
marketplace. Revenue increased in the third and fourth quarter of 1998 as a
result of significant growth in our search listing revenue which increased as a
result of growth in our advertiser base and an increase in the number of
consumers using our service. We expect that search listing advertisement revenue
will represent an increasing percentage of total revenue in future periods.
COST OF REVENUE
Cost of revenue consists primarily of costs associated with maintaining our
Web site and fees paid to outside service providers that provide and manage our
unpaid listings and banner advertisements. Costs associated with maintaining our
Web site include salaries of related personnel, depreciation of Web site
equipment, co-location charges for our Web site equipment and software license
fees. Cost of revenue increased in each quarter presented. The increase was
primarily due to the growth of database and hardware costs associated with
increases in capacity requirements resulting from growth of traffic, searches
24
<PAGE> 28
and click-through activity. The increase was also due to an increase in
personnel associated with maintaining the Web site. Further, increases in
traffic increased our expenses associated with the outside service provider
supplying our unpaid listings. We anticipate cost of revenue to continue to
increase as our traffic and number of advertisers increase.
OPERATING EXPENSES
Marketing and Sales. Marketing and sales expenses consist primarily of our
advertising and promotional expenditures such as online links from other Web
sites, banner advertisements on other sites and public relations, as well as
payroll and related expenses for personnel engaged in marketing, customer
service and sales functions. Marketing and sales expenses increased in each of
the quarters presented. The increase was primarily related to preparation for
the official launch of our Web site, which occurred in June 1998, and continued
efforts to expand our presence throughout the Internet. The increase was also
attributable to an increase in marketing and sales personnel from no employees
on January 1, 1998 to 29 such employees on December 31, 1998. We believe that
continued investment in marketing, sales and distribution is critical to
attaining our strategic objectives and as a result, expect these costs to
continue increasing in the future.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; facilities; professional services, including consulting; travel and
other general corporate expenses. General and administrative expenses increased
in each of the quarters presented. These increases were primarily due to
increases in headcount and related expenses associated with the hiring of
personnel and professional services. We expect general and administrative
expenses to continue to increase as we expand our staff and incur additional
costs related to the growth of our business and complying with the reporting
obligations of a public company.
Product Development. Product development expenses consist primarily of
payroll and related expenses for personnel responsible for development of
features and functionality for our service as well as license fees for software
used in product development and depreciation for related equipment. Product
development expenses decreased in the second quarter of 1998 as a result of
certain consulting services incurred only in the first quarter as well as the
transition of some of these consultants to employees of GoTo.com and associated
decreases in compensation expense. Product development expenses increased during
the third and fourth quarters of 1998. The increase was primarily due to
increased staffing and associated costs relating to enhancing features and
functionality of our Web site, search experience and customer service. We
believe that continued investment in product development is critical to
attaining our strategic objectives and as a result, expect product development
expenses to continue increasing in the future.
Amortization of Deferred Compensation. In connection with this offering of
shares of our common stock, certain stock options granted during the year ended
December 31, 1998, the quarter ended March 31, 1999, on April 6, 1999 and on
April 12, 1999 have been considered to be compensatory for financial accounting
purposes. Total compensation associated with these stock options during this
period amounted to $7.5 million. This amount represents the difference between
the exercise price of the stock options and the deemed fair value of our common
stock at the time of the grants or issuances. Compensation associated with these
stock options is amortized and expensed over the applicable vesting periods.
Approximately $833,000 was charged to operations for the
25
<PAGE> 29
twelve months ended December 31, 1998, and approximately $1.0 million will be
amortized and charged to operations for the quarter ended March 31, 1999 and the
remaining $6.1 million will be amortized and charged over the vesting periods of
the applicable options through the fiscal year ending December 31, 2003. The
stock option compensation relates only to stock options awarded to employees,
while salaries and related benefits are included in the applicable cost of
revenue or operating expense line item. Issuances of common stock and warrants
to non-employees as compensation are included in the applicable cost of revenue
or operating expense line item.
INTEREST INCOME, NET
Interest income, net, consists primarily of earnings on our cash and cash
equivalents, net of interest expense attributable to equipment leases and any
taxes. Net interest income increased during the second and third quarters of
1998 and decreased during the fourth quarter of 1998. These changes were
primarily due to fluctuations in average cash and cash equivalent balances as we
received funds from our financing activities. We expect interest income, net, to
increase following this offering as a result of increased cash balances
resulting from this offering.
INCOME TAXES
As of December 31, 1998 we had $12.4 million of net operating loss
carryforwards for federal income tax purposes, which begin to expire in 2012. We
have provided a full valuation allowance on the deferred tax asset, consisting
primarily of net operating loss carryforwards, because of uncertainty regarding
its realizability. Certain changes in the ownership of our common stock, as
defined in the Internal Revenue Code of 1986 may limit the utilization of these
carryforwards. See Note 2 of Notes to Financial Statements.
26
<PAGE> 30
TWELVE MONTHS ENDED DECEMBER 31, 1998 AND INCEPTION TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
INCEPTION TO TWELVE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................... $ 22 $ 822
Cost of revenue............................. 6 1,429
------ --------
Gross profit (loss)......................... 16 (607)
Operating expenses:
Marketing and sales....................... 65 9,645
General and administrative(a)............. 24 1,670
Product development(a).................... 46 1,274
Amortization of deferred compensation..... -- 833
------ --------
Total operating expenses.................... 135 13,422
------ --------
Loss from operations........................ (119) (14,029)
Interest income, net...................... -- 316
------ --------
Loss before provision for income taxes...... (119) (13,713)
Provision for income taxes.................. 1 1
------ --------
Net loss.................................... $ (120) $(13,714)
====== ========
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non-cash charges totalling $427,000 related to common stock and warrants as
compensation to non-employees during the twelve months ended December 31,
1998.
Our fiscal year runs from January 1 through December 31. We were founded in
September of 1997. We completed proof-of-concept testing and formally commenced
operations on June 1, 1998. As a result of these factors, comparisons between
the fiscal years ended December 31, 1997 and 1998 have limited meaning.
Our revenue increased to approximately $822,000 for the twelve months ended
December 31, 1998 compared to approximately $22,000 for the period from
inception to December 31, 1997 as a result of our commencement of operations as
well as growth in our advertiser base and an increase in the number of consumers
using our product. Cost of revenue increased to $1.4 million for the twelve
months ended December 31, 1998 from approximately $6,000 for the period from
inception to December 31, 1997 primarily due to increased database and hardware
capacity requirements as well as an increase in the number of personnel required
to support our Web site. Marketing and sales expenses increased to $9.6 million
for the twelve months ended December 31, 1998 from approximately $65,000 for the
period from inception to December 31, 1997, primarily as a result of increased
distribution of our search service and additional personnel for marketing and
sales functions. General and administrative expenses increased to $1.7 million
for the twelve months ended December 31, 1998 from approximately $24,000 for the
period from inception to December 31, 1997 primarily due to increased headcount
and related expenses associated with the hiring of additional personnel and
increased professional services. Product development expenses increased to $1.3
million for the twelve months ended December 31, 1998 from approximately $46,000
for the period from inception to December 31, 1997 primarily due to increased
staffing and associated costs relating to enhancing features and functionality
to our Web site, search experience and customer service. Net interest income
increased to approximately $316,000 for the twelve months ended December 31,
1998 from no interest income for the period from inception to December 31, 1997
primarily due to earnings on cash and cash equivalent balances.
27
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
GoTo.com has historically satisfied its cash requirements primarily through
private placements of equity securities and lease financings. To date, GoTo.com
has raised approximately $53.9 million through equity financings. See Notes 3
and 7 to Notes to Financial Statements.
Net cash used in operating activities totaled approximately $46,000 for the
period from inception through December 31, 1997 and $11.2 million for the year
ended December 31, 1998. The increase in the year ended December 31, 1998 was
primarily attributable to cash used in marketing and sales efforts as well as
product development, partially offset by increases in revenue.
Net cash used in investing activities totaled approximately $110,000 for
the period from inception through December 31, 1997 and $1.6 million for the
year ended December 31, 1998. This increase resulted primarily from capital
expenditures for property and equipment.
Net cash provided by financing activities totaled approximately $243,000
for the period from inception through December 31, 1997 and $30.8 million for
the year ended December 31, 1998. The increase resulted primarily from the net
proceeds from issuances of convertible preferred stock.
On April 14, 1999, the Company issued 3,628,447 shares of preferred stock
for $6.89 per share and received gross proceeds of approximately $25 million.
As of December 31, 1998, GoTo.com's principal sources of liquidity
consisted of $16.4 million of cash and cash equivalents. Although GoTo.com has
no material long-term commitments for capital expenditures, it anticipates an
increase in its capital expenditures consistent with anticipated growth of
operations, infrastructure and personnel.
GoTo.com believes that the net proceeds from this offering, combined with
its current cash and short-term investments, will be sufficient to meet its
anticipated liquidity needs for working capital and capital expenditures for at
least 12 months from the date of this offering. GoTo.com's future liquidity and
capital requirements will depend upon numerous factors. The pace of expansion of
GoTo.com's operations will affect GoTo.com's capital requirements. GoTo.com may
also have increased capital requirements in order to respond to competitive
pressures. In addition, GoTo.com may need additional capital to fund
acquisitions of complementary products, technologies or businesses. GoTo.com's
forecast of the period of time through which its financial resources will be
adequate to support its operations is a forward-looking statement that involves
risks and uncertainties and actual results could vary materially as a result of
the factors described above. If GoTo.com requires additional capital resources,
GoTo.com may seek to sell additional equity or debt securities or obtain a bank
line of credit. The sale of additional equity or convertible debt securities
could result in additional dilution to GoTo.com's stockholders. There can be no
assurance that any financing arrangements will be available in amounts or on
terms acceptable to GoTo.com, if at all.
YEAR 2000 COMPLIANCE
We cannot assure you that we will not experience unanticipated negative
consequences from year 2000 problems, including material costs caused by
undetected errors or defects in the technology used in our internal systems.
Many currently installed computer
28
<PAGE> 32
systems and software products are coded to accept only two digit entries in the
date code field. Beginning in the year 2000, these code fields will need to
accept four digit entries to distinguish the year 2000 and 21st century dates
from other 20th century dates. As a result, computer systems and/or software
products used by many companies may need to be upgraded to solve this problem.
Our online services and their associated and supporting tools, Web sites
and infrastructure were designed and developed to be year 2000 compliant. Our
internal systems, including those used to deliver our services, utilize
third-party hardware and software. We have begun the process of contacting the
vendors of these infrastructure products in order to gauge their year 2000
compliance. Based on vendors' representations received thus far, we believe that
the third-party hardware and software we use is year 2000 compliant, although we
have not heard from all of these vendors.
If we discover that certain of our services need modification, or certain
of our third-party hardware and software is not year 2000 compliant, we will try
to make modifications to our services and systems on a timely basis. We do not
believe that the cost of these modifications will materially affect our
operating results. However, we cannot assure you that we will be able to modify
these products, services and systems in a timely, cost-effective and successful
manner and the failure to do so could have a material adverse effect on our
business and operating results.
Year 2000 compliance issues also could cause a significant number of
companies, including our current advertisers, to reevaluate their current system
needs and, as a result, consider switching to other systems and means of
advertising. This could result in a material adverse effect on our business,
operating results and financial condition. Also, during the next six months
there is likely to be an increased advertiser focus on addressing year 2000
compliance issues, creating the risk that advertisers may reallocate
expenditures to fix year 2000 problems of existing systems. Although we have not
experienced these effects to date, if advertisers defer Internet advertising and
commerce and related services because of such a reallocation, it would adversely
affect our business and operating results.
29
<PAGE> 33
BUSINESS
GOTO.COM
GoTo.com has pioneered an online marketplace where any participating
advertiser can bid in an ongoing auction for introductions to self-qualified,
prospective consumers. The GoTo.com marketplace serves the needs of three
constituencies: Internet consumers, advertisers and destination Web sites.
GoTo.com improves a consumer's ability to quickly and easily find relevant
search listings for advertisers of information, products and services while also
providing advertisers with a cost-effective way to target potential consumers.
In addition, GoTo.com outsources its search service to destination Web sites as
part of its Search Syndication Network. Advertisers are attracted to GoTo.com as
a result of the large number of consumer acquisition opportunities, and
consumers are attracted to GoTo.com by the breadth of relevant advertiser links
displayed on our service. The GoTo.com Search Syndication Network affords
destination Web sites the opportunity to enhance their users' experience and to
generate additional revenue from their consumer audiences.
Search results on the GoTo.com service are rank-ordered through a
competitive bid process whereby each advertiser's bid represents the amount it
will pay GoTo.com for each consumer click-through. The advertiser with the
highest bid is listed first in the search results, with the remaining
advertisers appearing in descending bid amount order. Since advertisers must pay
for each click-through to their Web site, advertisers select and bid on those
search terms that are most relevant to their business offerings, which leads to
relevant results for consumers. The GoTo.com service has grown to support over
6,000 advertisers bidding on over 150,000 keywords generating nearly 200,000
paid click-throughs per day. We believe that a critical mass of advertisers and
consumers supports a self-reinforcing cycle that stimulates growth in
marketplace participants and transactions.
INDUSTRY OVERVIEW
GROWTH OF CONSUMER USE AND COMMERCIALIZATION OF THE INTERNET
The Internet is a global medium, enabling millions of people worldwide to
share information, communicate and conduct business electronically. The
availability of powerful new tools that facilitate the development and
distribution of Internet content has led to a proliferation of information,
products and services offered on the Internet and dramatic growth in the number
of consumers using the Internet. International Data Corporation, commonly
referred to as IDC, estimates that the number of Internet users will grow from
approximately 97 million worldwide in 1998 to approximately 320 million
worldwide by the end of 2002. In addition, commerce conducted over the Internet
has grown and is expected to continue to grow dramatically. IDC estimates that
the percentage of Internet users buying goods and services on the Internet will
increase from approximately 28% at the end of 1998 to approximately 40% in 2002,
and that over the same period of time, the total value of goods and services
purchased over the Internet will increase from approximately $32.4 billion to
approximately $425.7 billion.
GROWTH IN INTERNET ADVERTISING AND INITIAL DEPENDENCE ON A FEW LARGE
PORTALS
The Internet has emerged as an attractive new medium for advertisers of
information, products and services to reach consumers. Forrester Research
estimates that the total
30
<PAGE> 34
worldwide dollar value of Internet advertising will increase from $1.5 billion
in 1998 to $15.2 billion in 2003, including $10.4 billion in the United States.
Historically, advertisers have been particularly attracted to sites
providing Web directories or search engines, such as Yahoo! and Excite. These
search services enable consumers to search the Internet for a listing of Web
sites based on a specific topic, product or service of interest. Search services
are, after e-mail, the most frequently used tool on the Internet. As a result,
Web sites providing search services offer advertisers significant reach into the
Internet audience. These Web sites also offer advertisers the opportunity to
target consumer interests based on keyword or topical search requests.
Many Web sites providing search capabilities have realized that increasing
the number, frequency and duration of consumer visits to their sites yields
greater potential advertising and electronic commerce opportunities.
Accordingly, these search sites have evolved into portals which, in addition to
providing consumers with search functionality, deliver a broader array of
content and services in an effort to retain consumers at their sites.
CONSUMERS' UNMET SEARCH NEEDS
The traditional search services of the portals have had difficulty scaling
as the volume and diversity of Internet content has grown. For example, on the
portals, consumers must frequently click-through multiple branches of a
hierarchical directory to locate relevant Web sites. This unwieldy process
actually benefits the portals because they can earn additional advertising
revenue by exposing consumers to multiple pages and prolonging the search
process.
In addition, traditional search engines rely upon an unregulated process
for assigning results to keywords that often generates irrelevant search
listings. Search engines that use automated search technology to catalog search
results generally rely on invisible Web site descriptions or "meta tags" that
are authored by Web site operators. Operators may freely tag their sites as they
choose. Consequently, some operators tag their sites with popular search terms
which are not relevant because by doing so they may attract additional consumer
attention at little or no marginal cost. In addition, many Web sites have
similar tags, and automated search technology is not equipped to prioritize
results in accordance with consumers' preferences.
The portals' objective to retain the consumer and thereby realize
additional advertising revenue is in direct conflict with the consumer's desire
to quickly and easily find relevant information, products and services. As a
result of this conflict and the difficulties traditional search engines are
encountering as the number of Web sites on the Internet continues to grow,
consumer searches now frequently generate hundreds and often even thousands of
results, many of which may have little relevance to the consumer's interest.
LIMITATIONS OF TRADITIONAL INTERNET ADVERTISING
As a result of portals' cost of revenue and operating expenses, portals
have focused on sales of advertisements to relatively large accounts, often on
an exclusive basis. Consequently, GoTo.com believes Internet advertising to date
has generally been limited to a relatively small number of large advertisers
capable of paying significant advertising fees.
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Moreover, traditional online advertising fails to exploit many of the
unique attributes of the Internet. Internet advertising can offer a level of
targetability, interactivity and measurability not generally available in other
media. With the proper tools, Internet advertisers have the ability to target
their messages to specific groups of consumers and receive prompt feedback as to
the effectiveness of their advertising campaigns. Accordingly, the Internet can
give advertisers the opportunity to develop one-to-one relationships with
consumers worldwide without a local market presence. However, to date, Internet
advertising has primarily taken the form of banner or sponsorship advertisements
which, like traditional media advertising, are typically priced on an impression
basis with advertisers paying for exposures to potential consumers.
Impression-based advertising inefficiently exploits the Internet's direct
marketing potential, resulting in low consumer click-through rates averaging
approximately 1%. As a result of these factors, advertisers are increasingly
concluding that portals do not represent an effective Internet advertising
solution. Jupiter Communications estimates that less than 5% of companies are
highly likely to renew their current advertising agreements with portal sites.
OUTSOURCED INTERNET SERVICES
To date, online advertising spending has been highly concentrated on portal
sites. Like the portals, other destination Web sites seek to attract and retain
consumer attention and maximize the revenue opportunity represented by that
attention. Web sites other than large portals currently represent approximately
85% of all page views on the Web according to Forrester Research. However, as a
result of the concentration of Internet advertising on the portals, other
destination Web sites are disadvantaged in their efforts to monetize consumer
attention. In an effort to more effectively capitalize on their consumer
audiences and provide more valuable advertising vehicles, many destination Web
sites are now outsourcing popular consumer services and content offerings. In
traditional media such as television, radio and print, syndicated content has
been widely used by local media in order to augment their core programming and,
in so doing, extend their audience reach and retention. On the Internet,
providers have emerged offering destination Web sites syndicated services such
as search, e-mail and mapping as well as content such as stock quotes and news
wires. Destination Web sites use these offerings to enhance consumer usage,
loyalty and retention.
THE NEED FOR AN ONLINE CONSUMER AND ADVERTISER MARKETPLACE
Conventional search increasingly generates multiple pages of irrelevant
results. At the same time, the diffusion of consumer attention across the
Internet, the concentration of online advertising on large Web sites, the
pricing of Internet advertisements on an impression basis with significant
minimum expenditure requirements, and the frequent use of exclusive
arrangements, have made it increasingly difficult for advertisers to cost-
effectively acquire qualified consumer leads on the Internet. This is
particularly true for advertisers seeking to reach targeted markets, despite the
unique abilities of the Internet to facilitate direct marketing. As a result,
consumers' needs and advertisers' desires to meet those needs often go
unmatched. GoTo.com believes there is a significant need for a sophisticated,
distributed online marketplace to serve both of these constituencies by
providing a targeted, cost-effective Internet advertising solution.
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THE GOTO.COM SOLUTION
GoTo.com has pioneered an online marketplace where any participating
advertiser can bid in an ongoing auction for introductions to self-qualified,
prospective consumers. The GoTo.com marketplace serves the needs of three
constituencies: Internet consumers, advertisers and destination Web sites.
GoTo.com improves a consumer's ability to quickly and easily find relevant
search listings for advertisers of information, products and services while also
providing advertisers with a cost-effective way to target potential consumers.
In addition, GoTo.com outsources its search service to destination Web sites as
part of its Search Syndication Network. Advertisers are attracted to GoTo.com as
a result of the large number of consumer acquisition opportunities, and
consumers are attracted to GoTo.com by the breadth of relevant advertiser links
displayed on our service. The GoTo.com Search Syndication Network affords
destination Web sites the opportunity to enhance their users' experience and to
generate additional revenue from their consumer audiences.
Search results on the GoTo.com service are rank-ordered through a
competitive bid process whereby each advertiser's bid represents the amount it
will pay GoTo.com for each consumer click-through. The advertiser with the
highest bid is listed first in the search results, with the remaining
advertisers appearing in descending bid amount order. Since advertisers must pay
for each click-through to their Web site, advertisers select and bid on those
search terms that are most relevant to their business offerings, which leads to
relevant results for consumers. The GoTo.com service has grown to support over
6,000 advertisers bidding on over 150,000 keywords generating nearly 200,000
paid click-throughs per day. We believe that a critical mass of advertisers and
consumers supports a self-reinforcing cycle that stimulates growth in
marketplace participants and transactions.
SEARCH MADE SIMPLE. GoTo.com is dedicated to assisting consumers in easily
finding what they are looking for on the Internet. GoTo.com does not fill its
home page with banner advertisements, which facilitates faster downloading than
portal search engines. Instead, the GoTo.com home page prominently features the
GoTo.com search box, without distractions, which enables consumers to easily
execute their searches. By generating a list of 40 results per page, GoTo.com
frequently allows consumers to locate a relevant destination site on the first
page of results. By foregoing exclusive advertising relationships and extraneous
content, GoTo.com removes the otherwise inherent conflict in assisting consumers
to locate relevant information and to pass quickly through GoTo.com to the
desired information source.
GoTo.com believes that its pay-for-performance advertising model aligns
advertiser and consumer interests. Consequently, GoTo.com can provide more
relevant and higher quality search results by assigning a cost to advertiser
placement decisions. In an independent online consumer survey recently conducted
by NPD Online Research, GoTo.com ranked ahead of Yahoo!, Excite, Lycos and
Infoseek in the category "frequency of finding information sought every time."
TARGETED PAY-FOR-PERFORMANCE ADVERTISING. Any advertiser in the GoTo.com
marketplace is able to specifically target those consumers who are interested in
the information, products or services offered by the advertiser. GoTo.com
enables highly efficient and cost-effective advertising expenditures.
Advertisers pay only for consumers who elect to visit the advertiser's Web site
after searching targeted keywords on which the advertiser has bid. As a result,
advertisers pay only for self-qualified leads rather than exposures to potential
consumers, as with impression-based advertising.
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Advertisers maintain control on a real-time basis over the amounts of their
bids for keywords they have selected and the aggregate amount spent on
advertising with GoTo.com. As a result, advertisers are able to precisely
control their costs of customer acquisition using the GoTo.com service. In
addition, GoTo.com does not enter into exclusive advertising arrangements,
thereby enabling access to the marketplace by all potential advertisers.
SEARCH SYNDICATION NETWORK. GoTo.com offers its search service at no charge
to destination Web sites participating in its Search Syndication Network.
Participating Web sites provide search functionality on their sites using the
GoTo.com service while maintaining the look, feel and navigation features
specific to their site. Because GoTo.com focuses on deriving its revenue
primarily from search results rather than banner advertising, GoTo.com can
provide these Web sites with search functionality without charging licensing or
set-up fees and without competition for consumer attention for non-search
content. Also, GoTo.com offers an outsourced solution for selling banner
advertising for searches conducted on network affiliates' sites, and allows the
network affiliates to keep resulting banner advertising revenue. Through its
Search Syndication Network, GoTo.com is building relationships with network
affiliates that are intended to increase the number of click-throughs delivered
to advertisers, which would increase the value of the GoTo.com advertising
proposition.
GOTO.COM STRATEGY
GoTo.com's objective is to expand participation and increase transactions
in its online marketplace. We believe that a critical mass of advertisers,
consumers and network affiliates supports a self-reinforcing cycle that
stimulates growth in the number of marketplace participants which, in turn, can
increase the efficiency of the GoTo.com service. We further believe that this
efficiency will increase the competition for prominent search result placement
and may, thereby, increase the amounts advertisers are willing to bid for
participation in the GoTo.com marketplace. Advertisers are attracted to GoTo.com
as a result of the large number of consumer acquisition opportunities, and
consumers are attracted to GoTo.com by the breadth of relevant advertiser links
displayed on GoTo.com. A critical mass of paying advertisers increases
GoTo.com's ability to generate comprehensive, relevant search results and to
monetize consumer search requests. The resulting revenue opportunity provides
the incentive for GoTo.com's network affiliates to direct traffic to our
syndicated search offering. Key elements of GoTo.com's strategy are:
EXPAND ADVERTISER BASE. The GoTo.com marketplace currently supports over
6,000 advertisers. GoTo.com intends to substantially increase the number of
paying advertisers using the GoTo.com marketplace. To build further advertiser
participation, GoTo.com will leverage its reputation for pay-for-performance,
direct response marketing among advertisers and their intermediaries, such as
advertising consultants and media buyers. GoTo.com intends to reach these
constituencies through multiple marketing channels, including targeted online
marketing, mailings, sponsorship of Web sites where advertisers congregate,
participation at trade shows and appearances in advertising industry
periodicals. We believe that the GoTo.com marketplace is scalable and can
support a broader and deeper array of advertisers than traditional online
advertising solutions. Accordingly, GoTo.com intends to capture a significant
share of the advertising from the growing number of new online businesses.
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EXPAND CONSUMER BASE. The GoTo.com marketplace currently supports nearly
200,000 of paid consumer click-throughs per day. GoTo.com intends to
substantially increase the number of consumers participating in the GoTo.com
marketplace. By providing the GoTo.com search engine as a syndicated service to
destination Web sites, GoTo.com plans to leverage and grow its Search
Syndication Network to greatly expand its consumer reach. Further, GoTo.com
intends to increase traffic at the GoTo.com home page through a variety of
consumer marketing and acquisition initiatives, including search box banner
advertisements as well as through paid placements within browser environments
and payments to destination Web sites that direct traffic to the GoTo.com home
page.
LEVERAGE TECHNOLOGY TO CREATE SCALE AND COMPETITIVE ADVANTAGE. The services
GoTo.com currently provides to advertisers include automated account creation
and keyword bidding, as well as a proprietary account maintenance product that
allows advertisers to log-in to a secure Web site where they can perform basic
account management functions such as adding funds to their accounts, viewing
performance reports and changing their bids. GoTo.com intends to leverage its
technology to grow an efficient and scalable operations infrastructure enabling
millions of billing events for hundreds of thousands of advertisers at a high
quality service level and at a relatively low internal cost. In addition,
GoTo.com plans to continue to enhance the services it provides to advertisers.
GoTo.com also intends to increasingly automate the sale of advertising, enabling
advertisers to have greater control over, and satisfaction with, advertising on
the GoTo.com marketplace. GoTo.com reduces its cost of revenue and customer
service costs because a majority of advertisers open and maintain their accounts
with GoTo.com through an automated interface.
LEVERAGE UNIQUE BUSINESS MODEL. GoTo.com believes that its business model
provides a number of competitive advantages. The advertisers participating in
the GoTo.com marketplace provide their own Web site descriptions and, through
competitive bidding, with bid amounts visible to all participants, rank and set
the prices paid for search results. This reduces the costs GoTo.com must pay to
perform these tasks. In addition, our business model does not require us to
carry any physical inventory or build or manage creative materials. GoTo.com is
therefore able to direct the capital that would otherwise be used for these
purposes towards growing our business, enhancing our services, building brand
awareness and pursuing other strategic opportunities.
THE GOTO.COM SERVICE
SEARCH TOOL
Consumers use the GoTo.com service to locate desired providers of
information, products and services. The home page of GoTo.com's stand-alone Web
site features a prominent search box and no banner advertising, enabling the
page to load quickly. In addition, consumers can access the GoTo.com service
from any of the over 40,000 Web sites currently participating in our Search
Syndication Network. After entering a targeted keyword search, consumers are
presented with a list of 40 search results per page. This relatively large
number of results per page frequently enables one-click searches. Consumers then
access the desired Web site by clicking on the hypertext links included in the
search results. To further assist consumers in locating desired Web sites,
GoTo.com search results pages include suggested related searches.
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AUCTION FOR PRIORITY PLACEMENT OF SEARCH RESULTS
GoTo.com search results are prioritized for consumers based on advertiser
bids for placement within the listing. Paying advertisers are listed in
descending bid order, with the highest bidder appearing at the top of the search
results. Bids are expressed as the amount advertisers pay GoTo.com for each
consumer click-through. As evidenced by the superior consumer click-through
rates associated with the top search result listings, consumers are attracted to
advertisers listed highest in the search results. Based on GoTo.com search data,
a disproportionate number of GoTo.com consumers click on the first, second or
third Web sites listed. Following paid priority results, GoTo.com offers a
listing of Web sites generated by traditional search technology provided through
a partnership with Inktomi Corporation.
Advertiser bid amounts are displayed under each search result. By
disclosing bids to both consumers and other advertisers, GoTo.com promotes an
open and efficient marketplace. Using the open bidding information, advertisers
are able to determine the bids necessary to achieve their desired ranking, which
enables competition among advertisers and promotes greater relevancy for
consumers.
ADVERTISING ON GOTO.COM
GoTo.com offers a self-service, automated online form where advertisers can
sign up and bid for search listings. Potential advertisers find the GoTo.com Web
site directly or through custom offer pages on other sites. On the welcome page
of the sign up form, potential advertisers are able to link to a frequently
asked questions page that contains information about GoTo.com's editorial
policies, instructions for opening a new account and account maintenance
information.
As part of the sign up process, advertisers enter basic contact information
and select a unique user ID and password for accessing and maintaining account
information online using GoTo.com's proprietary account maintenance product.
Each advertiser also enters keywords on which it wishes to bid, the bid amounts
and information about the advertiser's Web site including a title customized for
the applicable keyword, a description of its Web site offerings and information
necessary for hypertext linking. Advertisers are only required to provide a
textual description of their offerings, as opposed to labor-intensive graphics
and other multimedia content, which significantly enlarges the number of
potential participants.
During the sign up process, advertisers also enter payment information.
Advertisers must currently commit to a minimum initial payment of $25.00. An
advertiser may choose to pay by check or credit card. After entering payment
information, advertisers are presented with the terms and conditions of
advertising on the GoTo.com service, which must be accepted before an order is
processed. After the advertiser accepts these terms, a confirmation screen
appears with a tracking number for the advertiser's convenience. If an
advertiser contacts GoTo.com's customer service, the tracking number enables us
to quickly find the advertiser's enrollment application. Once the sign up
process has been completed, the advertiser receives a confirmation by e-mail
that the sign up form was received by GoTo.com.
By automating the sale and maintenance of advertising accounts, GoTo.com
enables advertisers to have greater control over, and satisfaction with, the
advertising process, while simultaneously reducing GoTo.com's cost of revenue.
GoTo.com also employs an
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experienced sales and support team to attract large accounts, to review
advertising for relevancy and to assist advertisers in cases where more personal
attention is required.
GoTo.com offers advertisers a variety of payment plans to ensure that
advertisers maintain sufficient funds in their GoTo.com account and remain
active on the service. Advertisers on the GoTo.com service may pay for
advertising in advance, or for qualified accounts, may elect to be invoiced.
GoTo.com notifies advertisers using its service by e-mail when account balances
are running low. Advertisers may authorize GoTo.com to either charge them on a
monthly basis to refresh their account or charge them an additional fixed amount
each time their account approaches a zero balance.
To promote fairness and efficiency, GoTo.com has adopted marketplace rules
and policies. For example, advertisers are not permitted to bid on search
results unrelated to their Web site offerings, use false or misleading
advertising, or engage in defamation, harassment or other illegal activity. Each
advertiser's compliance with these rules and policies is enforced in part by
other advertisers participating in the service. The GoTo.com service also uses
proprietary fraud protection systems designed to ensure that advertisers pay
only for genuine click-throughs by consumers.
MARKETING AND SALES
GoTo.com attracts consumer attention to its service through direct
marketing efforts, as well as through our Search Syndication Network. GoTo.com
attracts consumers with banner advertisements incorporating the GoTo.com search
box on several major Web sites. In addition to online marketing with
high-traffic Web sites, GoTo.com has established relationships with browsers
that offer GoTo.com search functionality as a default search service in rotation
with other providers of search functionality.
GoTo.com has also established a Search Syndication Network consisting of
over 40,000 destination Web sites operated by third parties across the Internet.
Web sites in the Search Syndication Network may participate in two ways.
First, network affiliate sites can place a GoTo.com search box on their
site and earn a payment for each consumer they deliver to the GoTo.com home
page. Web sites interested in receiving payment for directing traffic to
GoTo.com's Web site fill out an application form at our site. Once the
application form is accepted, the Web site receives a confirmation e-mail from
us, which directs the network affiliate to a Web site where it can obtain a
search box to place on its site. At this Web site, the network affiliate can
also obtain traffic information and revenue reports. GoTo.com offers network
affiliates several different search box options. Once a network affiliate
selects a search box, it receives a tracking ID that enables GoTo.com, with
assistance from a third party provider, to track traffic from the network
affiliate to GoTo.com. Payments by GoTo.com to network affiliates participating
in this program are made once per quarter.
Second, GoTo.com generates traffic on its service by syndicating the
GoTo.com search service to other sites. Through this part of the Search
Syndication Network, a consumer queries the GoTo.com search engine at a Web site
operated by a network affiliate and receives search results without leaving the
affiliate's site.
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Network affiliates electing to host GoTo.com search functionality on their
sites can take advantage of any or all of the following benefits:
- acquire turnkey search service without the need to develop and manage it
in-house;
- generate revenues without the costs and challenges associated with
building and maintaining their own advertising sales force;
- enable rapid implementation of search functionality with no out-of-pocket
investment; and
- build and maintain brand loyalty by delivering content with the look,
feel and navigation features specific to each network affiliate, creating
the impression to consumers that they have not left the network
affiliate's site.
To build further advertiser participation, GoTo.com will leverage its
reputation for pay-for-performance, direct response marketing among advertisers
and their intermediaries, such as advertising consultants and media buyers.
GoTo.com intends to reach these constituencies through multiple marketing
channels, including targeted online marketing, mailings, sponsorship of Web
sites where advertisers congregate, participation at trade shows and appearances
in advertising industry periodicals.
TECHNOLOGY
The GoTo.com technical operating environment is designed to provide the
best search experience on the Internet to our consumers, advertisers and network
affiliates. GoTo.com intends to continue investing in its technology
infrastructure to maintain and enhance its competitive advantage.
GoTo.com makes its services available to advertisers and consumers through
a combination of its own proprietary technology and commercially available
technology from industry leading providers such as Sun Microsystems, Cisco and
Oracle. GoTo.com also relies upon a third party located in Sunnyvale,
California, to provide Web hosting services, including hardware support and
service and network coordination. GoTo.com also maintains its data warehouse at
this third party's facilities. Any disruption in the Internet access or other
services provided by this third party could have a material adverse effect on
our business. Accordingly, our research and development efforts include the
development and implementation of business continuity and disaster recovery
systems, improvement of data retention, backup and recovery processes and
systems and standardization of technology platforms.
We cannot assure you that our technology infrastructure is secure from
unauthorized access. See "Risk Factors -- We Have Capacity Constraints and
System Development Risks That Could Damage Our Customer Relations or Inhibit Our
Possible Growth, and We Need to Expand Our Management Systems and Controls." We
also cannot assure you that we will not experience unanticipated negative
consequences from year 2000 problems. See "Risk Factors -- Potential Year 2000
Problems with Our Internal Operating Systems or Our Services Could Adversely
Affect Our Business" and "-- Spending by Our Advertisers to Evaluate and Address
Year 2000 Compliance Could Result in Lower Demand For Our Services."
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COMPETITION
The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. GoTo.com currently or potentially competes
with many other providers of Web directories, search and information services as
well as traditional media for consumer attention and advertising expenditures.
We expect competition to intensify in the future. Barriers to entry may not be
significant, and current and new competitors may be able to launch new Web sites
at a relatively low cost. Accordingly, we believe that our success will depend
heavily upon achieving significant market acceptance before our competitors and
potential competitors introduce competing services.
GoTo.com competes with online services, other Web sites and advertising
networks, as well as traditional offline media such as television, radio and
print for a share of advertisers' total advertising budgets. We believe that the
number of companies selling Web-based advertising and the available inventory of
advertising space has recently increased substantially. Accordingly, GoTo.com
may face increased pricing pressure for the sale of advertisements and direct
marketing opportunities, which could adversely affect our business and operating
results.
GoTo.com also competes with providers of Web directories, search and
information services, all of whom offer advertising, including, among others,
America Online, Inc. (AOL.com, NetFind and Netscape Netcenter), AskJeeves, Inc.
CNET, Inc. (Snap), Excite, Inc. (including WebCrawler and Magellan), Inktomi
Corporation, LookSmart, Ltd., Lycos, Inc. (including HotBot), Microsoft
Corporation (LinkExchange, Inc. and msn.com), The Walt Disney Company/Infoseek
Corporation (including the Go Network) and Yahoo! Inc. In addition, we expect
that other companies will offer directly competing services in the future. For
example, we expect AltaVista, a division of Compaq Computer Corporation, to
offer such a service.
Most providers of Web directories, search and information services offer
additional features and content that GoTo.com has elected not to offer. Also,
many of these competitors, as well as potential entrants into our market, have
longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater resources to promotion and Web site and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with providers of Web
directories, search and information services or advertising solutions, and
existing providers of Web directories, search and information services or
advertising solutions may continue to consolidate. In addition, providers of
Internet browsers and other Internet products and services who are affiliated
with providers of Web directories and information services in competition with
the GoTo.com service may more tightly integrate these affiliated offerings into
their browsers or other products or services. Any of these trends would increase
the competition we face and could adversely affect our business and operating
results.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
Our services operate in part by making Internet services and content
available to our users. This creates the potential for claims to be made against
us, either directly or through contractual indemnification provisions with third
parties. These claims might, for example, be made for defamation, negligence,
copyright or trademark infringement,
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personal injury, invasion of privacy or other legal theories. We receive
correspondence alleging some of these types of claims from time to time. Any
claims could result in costly litigation and be time consuming to defend, divert
management's attention and resources, cause delays in releasing new or upgrading
existing services or require us to enter into royalty or licensing agreements.
Litigation regarding intellectual property rights is common in the Internet
and software industries. We expect that Internet technologies and software
products and services may be increasingly subject to third-party infringement
claims as the number of competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. There can be
no assurance that our services do not infringe the intellectual property rights
of third parties.
Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. A successful claim of infringement against us and
our failure or inability to license the infringed or similar technology could
adversely affect our business.
Our success and ability to compete are substantially dependent upon our
internally developed technology and data resources, which we protect through a
combination of copyright, trade secret and trademark law. We have no patents
issued to date on our technology.
We are aware that certain other companies are using or may have plans to
use the terms "GoTo," "Go," "Go2" and variations of these terms as part of a
company name, domain name, trademark or servicemark. In addition, we have
received notice from companies claiming superior rights to marks such as these.
We cannot assure you that additional companies will not claim such superior
rights or that we will not be subject to infringement claims. A successful
infringement claim by the owner of a mark including "GoTo" or a variation could
require us to change our name, which would be expensive and disruptive to our
business. Further, despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
services, technology and other intellectual property, and we cannot be certain
that the steps we have taken will prevent any misappropriation or confusion
among consumers and advertisers.
We believe that The Walt Disney Company and certain of its affiliates,
including Infoseek Corporation, are infringing our GoTo.com logo. In February
1999 we sued these companies for violating federal trademark law and engaging in
unfair competition. Our lawsuit is based on the use by these companies of a "GO"
design mark to provide Internet services, including a search engine in
connection with their "Go Network". We are seeking to prevent these companies
from using this "GO" design mark and engaging in other activities, as well as
other remedies. The lawsuit is at a preliminary stage, and we cannot assure you
that the outcome of this litigation will be favorable for us. For example, we
may not prevail and be able to stop these companies from causing confusion among
consumers and advertisers through continued use of the "GO" design mark. In
addition, these companies could file counterclaims or separate lawsuits or other
proceedings, possibly seeking to prevent us from using the GoTo.com logo or
other relief. An unfavorable result could affect the value of or even prevent us
from using the GoTo.com logo. Even if we are successful, this litigation could
be expensive to pursue and will be distracting to our management and other
employees. Any adverse developments resulting from this litigation could
seriously harm our business.
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The Internet domain name we use, "GoTo.com," is an extremely important part
of our business. The acquisition and maintenance of domain names generally are
regulated by governmental agencies and their designees. For example, in the
United States, the National Science Foundation has appointed Network Solutions,
Inc. as the current exclusive registrar for the ".com," ".net" and ".org"
generic top-level domains. The regulation of domain names in the United States
and in foreign countries is subject to change in the near future. Such changes
in the United States are expected to include a transition from the current
system to a system that is controlled by a non-profit corporation and the
creation of additional top-level domains. Governing bodies may establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we may be unable
to acquire or maintain relevant domain names in all countries in which we
conduct business. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of our trademarks and other proprietary rights. Third parties have acquired
domain names that include "goto" or varieties thereof both in the United States
and elsewhere.
EMPLOYEES
As of March 31, 1999, GoTo.com had 75 full-time employees, 18 of whom were
engaged in product development, 38 in marketing and sales, and 19 in finance,
administration and operations. Sales and marketing employees include customer
service representatives, salespeople, sales administration personnel, marketing
and communications personnel and creative services personnel. GoTo.com's future
success depends, in part, on its continuing ability to attract, train and retain
highly qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that GoTo.com will be able
to recruit and retain sufficient numbers of qualified personnel. None of
GoTo.com's employees is represented by a labor union. GoTo.com has not
experienced any work stoppages and considers its relations with its employees to
be good.
FACILITIES
GoTo.com leases approximately 10,000 square feet of office space in a
single office building located in Pasadena, California. GoTo.com believes its
current facilities will not be adequate to sustain the anticipated increase in
headcount for the 1999 fiscal year.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of GoTo.com as of April 1, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey S. Brewer.............. 29 President, Chief Executive Officer and Director
Ted Meisel..................... 35 Chief Operating Officer
Todd Tappin.................... 37 Chief Financial Officer
Harry Chandler................. 45 Executive Vice President
Stephanie A. Sarka............. 35 Senior Vice President of Marketing
James B. Gallinatti Jr......... 43 Vice President of Sales and Service
Alan Colner(2)................. 44 Director
Timothy Draper(1).............. 40 Director
William Elkus.................. 47 Director
William Gross(2)............... 40 Director
Robert M. Kavner(1)(2)......... 55 Director, Chairman of the Board
Linda Fayne Levinson(1)........ 57 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Jeffrey S. Brewer has served as President and Chief Executive Officer since
March 1, 1998, and as a Director since June 25, 1998. From August 1995 to
January 1998, he was a founder and served as Chief Technology Officer of
Ticketmaster Online-CitySearch, Inc. (formerly CitySearch, Inc.), an online
provider of city guides and live event ticketing. From June 1994 to August 1995,
he served as Manager of Online Development at Knowledge Adventure, Inc., an
educational software developer of multimedia CD-ROMs for children. Mr. Brewer
received his B.A. in Economics from Southern Methodist University.
Ted Meisel has served as Chief Operating Officer since December 1, 1998.
From April 1996 to November 1998, he served in a variety of roles at
Ticketmaster Online-CitySearch, Inc. (formerly CitySearch, Inc.), an online
provider of city guides and live event ticketing, most recently as Vice
President of the Products and Technology Group. From November 1991 to March
1996, he worked at McKinsey & Company, a management consulting firm, most
recently as an Engagement Manager. Mr. Meisel holds a B.A. in History from
Dartmouth College and a J.D. from Stanford Law School.
Todd Tappin has served as Chief Financial Officer since October 1, 1998.
From March 1992 to October 1998, Mr. Tappin served as Senior Vice President of
Finance for News Corp.-Twentieth Century Fox, where he oversaw all Finance,
Strategic Planning and Business Development for the Home Entertainment and
Interactive Divisions, and as the General Manager of Twentieth Century Fox's
Home Entertainment Division in Canada. Mr. Tappin began his professional career
as a certified public accountant at Deloitte, Haskins and Sells. He holds a B.S.
in Business from the University of Colorado.
Harry Chandler has served as Executive Vice President since March 29, 1999.
From April 1994 to March 1999, he served as Director of New Business Development
at the Los Angeles Times. From 1991 to 1994, he served as President of Dream
City Films. Mr. Chandler holds a B.A. in Communications from Stanford
University.
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Stephanie A. Sarka has served as Senior Vice President of Marketing since
March 23, 1998. From March 1993 to September 1997, Ms. Sarka worked for Mark
Cross, the American luxury goods brand, where she served first as Senior Manager
of Product Management, then as Director of Merchandise Planning & Brand
Development, then as Divisional Vice President & General Manager. Ms. Sarka
holds a B.A. in Economics from Stanford University and an M.B.A. from Harvard
Business School.
James B. Gallinatti Jr. has served as Vice President of Sales and Service
since March 30, 1998. From May 1996 to September 1997, Mr. Gallinatti served as
Vice President of Sales and Marketing at Austin James, Inc., a consumer software
company. From June 1986 to July 1995, he worked for Lotus Development
Corporation in a variety of roles, including West Coast Regional Director of
Sales from March 1990 to June 1994, and Director of Marketing for cc:Mail from
June 1994 to July 1995. Mr. Gallinatti received his B.A. in Human Biology from
Stanford University.
Alan Colner has served as a Director of GoTo.com since November 11, 1998.
Mr. Colner has served as Managing Director, Private Equity Investments at Moore
Capital Management, Inc. since August 1996. Prior to joining Moore Capital
Management, Inc., he was a Managing Director of Corporate Advisors, L.P., the
general partner of Corporate Partners, a private equity fund affiliated with
Lazard Freres & Co. LLC. Mr. Colner serves as a director of iVillage Inc. and
NextCard Inc. He also serves on the board of directors of several private
companies. Mr. Colner received his B.A. from Yale University and his M.B.A. from
the Stanford University Graduate School of Business.
Timothy Draper has served as a Director of GoTo.com since June 25, 1998.
Mr. Draper founded and has served as Managing Director of Draper Fisher
Jurvetson, a venture capital firm, since July 1985. He serves on the board of
directors of PLX Technology Inc. He also serves on the board of directors of
several private companies. Mr. Draper received his B.S. in Electrical
Engineering from Stanford University and his M.B.A. from Harvard Business
School.
William Elkus has served as a Director of GoTo.com since March 29, 1999.
Mr. Elkus has served as Managing Director of idealab! Capital Management I, LLC,
a venture capital firm, since March 1998. From January 1994 to December 1997, he
was a co-founder and served as Managing Director of Klein Investment Group LP, a
merchant bank. He serves on the board of directors of several private companies.
Mr. Elkus received an S.B. in Mathematics from MIT, an S.M. in Management from
MIT Sloan School of Management and a J.D. from Harvard Law School.
William Gross has served as a Director of GoTo.com since its inception. He
also served as President and Chief Executive Officer of GoTo.com from its
inception until March 1, 1998 and served as Chairman of the Board from
GoTo.com's inception until November 1998. Since March 1996, Mr. Gross was a
founder and served as Chairman of the Board, Chief Executive Officer and
President of Bill Gross' idealab!, an incubator and venture capital firm
specializing in Internet companies. He also has served as a Managing Director of
idealab! Capital Management I, LLC, a venture capital firm, since March 1998.
From June 1991 to January 1997, he served as Chairman of Knowledge Adventure,
Inc., an educational software developer of multimedia CD-ROMs for children,
which was founded by Mr. Gross. From February 1986 to March 1991, he was a
developer at Lotus Development Corporation. Mr. Gross serves on the board of
directors of Ticketmaster Online-CitySearch, Inc. (formerly CitySearch, Inc.),
an online provider of city guides and live event ticketing. He also serves on
the board of directors of several private companies.
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<PAGE> 47
Mr. Gross received his B.S. in Mechanical Engineering from the California
Institute of Technology.
Robert M. Kavner has served as Chairman of the Board of Directors since
November 11, 1998. Mr. Kavner has served as a General Partner of Bill Gross'
idealab!, an incubator and venture capital firm specializing in Internet
companies, since December 1998. From September 1995 to December 1998, he served
as President and Chief Executive Officer of On Command Corporation, a supplier
of in-room entertainment and information services to the lodging industry. From
June 1994 to September 1995, he served as an advisor to Creative Artists Agency.
From May 1984 to May 1994, he served as an Executive Vice President of AT&T,
where he acted as Chief Executive Officer of Multimedia Products and Services.
Mr. Kavner currently serves on the board of directors of the following public
companies: Fleet Financial Group, Earthlink Networks and Ticketmaster
Online-CitySearch, Inc. (formerly CitySearch, Inc.), an online provider of city
guides and live event ticketing. He also serves on the board of directors of
several private companies. Mr. Kavner received his B.B.A. in Business Management
from Adelphi University.
Linda Fayne Levinson has served as a Director of GoTo.com since November
25, 1998. Ms. Levinson has served as a principal of Global Retail Partners,
L.P., a private equity investment fund financing early stage companies, since
April 1997. From 1994 to 1997, she served as President of Fayne Levinson
Associates, a management consulting firm. Ms. Levinson serves on the board of
directors of Genentech, Inc., NCR Corporation, Administaff Inc. and Jacobs
Engineering Group. She also serves on the board of directors of several private
companies. Ms. Levinson received her A.B. in Russian Studies from Barnard
College, her M.A. in Russian Literature from Harvard University, and her M.B.A
from New York University.
CLASSIFIED BOARD
GoTo.com's certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving a staggered
three-year term. As a result, a portion of GoTo.com's board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, two of the nominees to the board will be elected
to one-year terms, two will be elected to two-year terms and three will be
elected to three-year terms. Thereafter, directors will be elected for
three-year terms. See "Description of Capital Stock--Delaware Anti-Takeover Law
and Certain Charter and Bylaw Provisions."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of the directors, officers or key
employees of GoTo.com.
BOARD COMMITTEES
GoTo.com established both an audit committee and compensation committee in
January 1999.
GoTo.com's audit committee consists of Messrs. Draper and Kavner and Ms.
Levinson. The audit committee reviews the internal accounting procedures of
GoTo.com and consults with and reviews the services provided by GoTo.com's
independent accountants.
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<PAGE> 48
GoTo.com's compensation committee consists of Messrs. Colner, Gross and
Kavner. The compensation committee reviews and recommends to the board of
directors the compensation and benefits of GoTo.com's employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of GoTo.com's board of
directors or compensation committee.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from GoTo.com for
their service as members of the board of directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below summarizes the compensation earned for services rendered to
GoTo.com in all capacities for the fiscal years ended December 31, 1997 and
December 31, 1998, by each person serving as GoTo.com's Chief Executive Officer
in the fiscal year ended December 31, 1998. These executives are referred to as
the Named Executive Officers elsewhere in this prospectus. No GoTo.com executive
officer earned more than $100,000 in salary and bonus during the fiscal year
ended December 31, 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(3)
<S> <C> <C> <C> <C>
Jeffrey S. Brewer(1)............... 1998 $70,833 -- 1,586,869
President and Chief Executive
Officer
William Gross(2)................... 1998 -- -- --
President and Chief Executive
Officer 1997 -- -- --
</TABLE>
- -------------------------
(1) Mr. Brewer joined GoTo.com as President and Chief Executive Officer on March
1, 1998. He currently is compensated with an annual salary of $85,000.
(2) Mr. Gross served as President and Chief Executive Officer of GoTo.com from
its inception until March 1, 1998. He received no compensation from GoTo.com
for his service as President and Chief Executive Officer.
(3) These options were granted pursuant to GoTo.com's 1998 stock option plan and
are options to purchase common stock of GoTo.com.
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<PAGE> 49
OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers in the fiscal year ended
December 31, 1998, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These assumed rates of appreciation comply with the rules
of the Securities and Exchange Commission and do not represent GoTo.com's
estimate of future stock price. Actual gains, if any, on stock option exercises
will depend on the future performance of GoTo.com's common stock.
In fiscal year 1998, GoTo.com granted options to purchase up to an
aggregate of 4,888,410 shares to employees, directors and consultants. All
options were granted under GoTo.com's 1998 stock option plan at exercise prices
at or above the fair market value of GoTo.com's common stock on the date of
grant, as determined in good faith by the board of directors. All options have a
term of ten years. Optionees may pay the exercise price by cash, check or
delivery of already-owned shares of GoTo.com's common stock. All options are
immediately exercisable upon grant; however, any unvested shares are subject to
repurchase by GoTo.com at their cost in the event of the optionee's termination
of employment.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------------- AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN LAST PRICE EXPIRATION -------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Jeffrey S. Brewer..... 1,586,869 32.5% $0.15 03/01/08 $149,696 $379,359
William Gross......... -- -- -- -- -- --
</TABLE>
AGGREGATE OPTION EXERCISES DURING THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers
information concerning exercisable and unexercisable options held as of December
31, 1998. No Named Executive Officer exercised options during the fiscal year
ended December 31, 1998.
The "Value of Unexercised In-the-Money Options at December 31, 1998" is
based on a value of $0.30 per share, the fair market value of GoTo.com's common
stock as of December 31, 1998, as determined by the board of directors, less the
per share exercise price multiplied by the number of shares issued upon exercise
of the option. All options were granted under GoTo.com's 1998 stock option plan.
All options are immediately
46
<PAGE> 50
exercisable upon grant; however, any unvested shares are subject to repurchase
by GoTo.com at their cost in the event of the optionee's termination of
employment.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Jeffrey S. Brewer.......... 1,586,869(1) -- $238,030(2) --
William Gross.............. -- -- -- --
</TABLE>
- -------------------------
(1) Of these shares, 1,322,391, if purchased, would be subject to a right of
repurchase by GoTo.com at a price of $0.15 per share as of December 31,
1998.
(2) Of this amount, $39,672 relates to shares not subject to a right of
repurchase by GoTo.com, and $198,359 relates to shares subject to a right of
repurchase by GoTo.com, as of December 31, 1998.
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<PAGE> 51
INCENTIVE STOCK PLANS
1999 EMPLOYEE STOCK PURCHASE PLAN
GoTo.com's 1999 Employee Stock Purchase Plan, or the 1999 Purchase Plan,
was adopted by the board of directors and stockholders of GoTo.com in April
1999. A total of 2,000,000 shares of common stock have been reserved for
issuance under the 1999 Purchase Plan, plus annual increases equal to the lesser
of (i) 1,000,000 shares, (ii) 3% of the outstanding shares on such date, or
(iii) a lesser amount determined by the board of directors. No shares have been
issued under the 1999 Purchase Plan.
The 1999 Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code of 1986, contains successive six-month offering
periods. The offering periods generally start on the first trading day on or
after March 1 and September 1 of each year, except for the first offering
period, which commences on the first trading day on or after the effective date
of this offering and ends on the last trading day on or before February 28,
2000.
Employees are eligible to participate if they are customarily employed by
GoTo.com or any participating subsidiary for at least 20 hours per week and for
more than five months in any calendar year. However, any employee who (i)
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of GoTo.com, or (ii)
whose rights to purchase stock under all of GoTo.com's employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each calendar
year may not be granted an option to purchase stock under the 1999 Purchase
Plan. The 1999 Purchase Plan permits participants to purchase common stock
through payroll deductions of up to 15% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings
and commissions, exclusive of payments for overtime, profit sharing payments,
shift premium payments, incentive compensation, incentive payments and bonuses.
The maximum number of shares a participant may purchase during a single offering
period is 25,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock of GoTo.com at the end of each offering period. The price
of stock purchased under the 1999 Purchase Plan is 85% of the lower of the fair
market value of the common stock at the beginning or at the end of the offering
period. Participants may end their participation at any time during an offering
period, and they will be paid their payroll deductions to date. Participation
ends automatically upon termination of employment with GoTo.com.
Rights granted under the 1999 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1999 Purchase Plan. The 1999 Purchase Plan provides
that, in the event of a merger of GoTo.com with or into another corporation or a
sale of substantially all of GoTo.com's assets, each outstanding option may be
assumed or substituted for by the successor corporation. If the successor
corporation refuses to assume or substitute for the outstanding options, the
offering period then in progress will be shortened and a new exercise date will
be set. The 1999 Purchase Plan will terminate in 2009. The board of directors
has the authority to amend or terminate the 1999 Purchase Plan, except that no
such action may adversely affect any outstanding rights to purchase stock under
the 1999 Purchase Plan.
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<PAGE> 52
1998 STOCK PLAN
GoTo.com's 1998 Stock Plan, or the 1998 Plan, provides for the granting to
employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, and for the granting to employees, directors and
consultants of nonstatutory stock options and stock purchase rights. The 1998
Plan, as amended, was approved by the board of directors and stockholders of
GoTo.com in April 1999. Unless terminated sooner, the 1998 Plan will terminate
automatically in 2008. A total of 8,500,000 shares of common stock is reserved
for issuance pursuant to the 1998 Plan, of which 2,013,664 are available for
future grants as of April 14, 1999, plus annual increases equal to the lesser of
(i) 7,500,000 shares, (ii) 4% of the outstanding shares on such date, or (iii) a
lesser amount determined by the board of directors.
The 1998 Plan may be administered by the board of directors or a committee
of the board of directors, which committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code.
The 1998 Plan administrator has the power to determine the terms of the options
or stock purchase rights granted, including the exercise price, the number of
shares subject to each option or stock purchase right, exercisability and the
form of consideration payable upon exercise. The board of directors has the
authority to amend, suspend or terminate the 1998 Plan, provided that no such
action may affect any share of common stock previously issued and sold or any
option previously granted under the 1998 Plan.
Options and stock purchase rights granted under the 1998 Plan are not
generally transferable by the optionee, and each option and stock purchase right
is exercisable during the lifetime of the optionee only by the optionee. Options
granted under the 1998 Plan generally must be exercised within three months of
the optionee's separation of service from GoTo.com, or within twelve months
after the optionee's termination by death or disability, but in no event later
than the expiration of the option's ten-year term. In the case of stock purchase
rights, unless the 1998 Plan administrator determines otherwise, the optionee's
restricted stock purchase agreement will grant GoTo.com a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service for GoTo.com for any reason (including death or disability). The
purchase price for shares repurchased pursuant to the purchaser's restricted
stock purchase agreement will be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness to GoTo.com. The repurchase
option will lapse at a rate determined by the 1998 Plan administrator. The
exercise price of all incentive stock options granted under the 1998 Plan must
be at least equal to the fair market value of the common stock on the date of
grant. The exercise price of nonstatutory stock options and stock purchase
rights granted under the 1998 Plan is determined by the 1998 Plan administrator,
but with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must at least be equal to the fair
market value of the common stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of GoTo.com's outstanding capital stock, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
of the common stock on the date of grant, and the term of any incentive stock
option must not exceed five years. The term of all other options granted under
the 1998 Plan may not exceed ten years.
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<PAGE> 53
The 1998 Plan provides that, in the event of a merger of GoTo.com with or
into another corporation or a sale of substantially all of GoTo.com's assets,
each outstanding option and stock purchase right will be assumed or an
equivalent option or stock purchase right substituted by the successor
corporation. If each outstanding option or stock purchase right is not assumed
or substituted, the 1998 Plan administrator is required to notify the optionees
that each such option or stock purchase right will be fully vested and
exercisable, including shares as to which it would not otherwise be vested or
exercisable, for a period of 15 days from the date of notice, and the option or
stock purchase right will terminate upon the expiration of such period.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
GoTo.com has not entered into employment agreements with its executive
officers, and their employment may be terminated at any time at the discretion
of GoTo.com's board of directors. GoTo.com has entered into Change in Control
Severance Agreements with Ted Meisel, Todd Tappin, Harry Chandler, James B.
Gallinatti Jr., Stephanie A. Sarka, Talmadge O'Neill, Tom Soulanille, Gregory
Robleski, Dan Scholnick, Erik Hovanec and Joshua Metzger, who are employees of
GoTo.com. These agreements provide that, in the event of the employee's
involuntary termination without cause within 12 months after a change in control
of GoTo.com, the employee will be entitled to six months of severance pay,
potential payments for health care continuation coverage and immediate vesting
of his or her options.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
GoTo.com's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for any of
the following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
GoTo.com's certificate of incorporation and bylaws provide that GoTo.com
will indemnify its directors and executive officers and may indemnify its other
officers and employees and other agents to the fullest extent permitted by law.
GoTo.com believes that indemnification under its bylaws covers at least
negligence and gross negligence on the part of indemnified parties. GoTo.com's
bylaws also permit it to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the bylaws would permit indemnification.
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<PAGE> 54
GoTo.com has entered into agreements to indemnify its directors and certain
officers, in addition to indemnification provided in GoTo.com's bylaws. These
agreements, among other things, provide for indemnification of GoTo.com's
directors and officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's services as a director or officer of GoTo.com or at the request of
GoTo.com. GoTo.com believes that these provisions and agreements are necessary
to attract and retain qualified persons as directors and officers.
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<PAGE> 55
CERTAIN TRANSACTIONS
In connection with its financing activities, GoTo.com issued shares of its
preferred stock to certain investors who beneficially own more than 5% of
GoTo.com's capital stock or whose principals serve as directors of GoTo.com.
These transactions and relationships are described below.
In March 1998, GoTo.com issued a total of 471,111 shares of Series A
Preferred Stock to various investors at a purchase price of $0.45 per share. Of
the total number of shares of Series A Preferred Stock issued, 222,222 shares
were issued to Bill Gross' idealab!.
In May 1998, GoTo.com issued a total of 8,311,688 shares of Series B
Preferred Stock to various investors at a purchase price of $0.77 per share. Of
the total number of shares of Series B Preferred Stock issued, 2,597,403 shares
were issued to entities affiliated with idealab! Capital Management I, LLC,
4,009,769 shares were issued to entities affiliated with Draper Fisher
Jurvetson, and 649,351 shares were issued to entities affiliated with Moore
Capital Management, Inc.
In July 1998, November 1998 and December 1998, GoTo.com issued a total of
10,710,348 shares of Series C Preferred Stock to various investors at a purchase
price of $2.076 per share. Of the total number of shares of Series C Preferred
Stock issued, 963,392 shares were issued to entities affiliated with idealab!
Capital Management I, LLC, 438,218 shares were issued to entities affiliated
with Draper Fisher Jurvetson, 4,850,001 shares were issued to entities
affiliated with Moore Capital Management, Inc., and 1,830,443 shares were issued
to entities affiliated with Global Retail Partners, L.P.
In April 1999, GoTo.com issued a total of 3,628,447 shares of Series D
Preferred Stock to various investors at a purchase price of $6.89 per share. Of
the total number of shares of Series D Preferred Stock issued, 703,993 were
issued to idealab! Holdings, L.L.C., 370,110 were issued to entities affiliated
with idealab! Capital Management I, LLC, 230,813 shares were issued to entities
affiliated with Draper Fisher Jurvetson, 571,604 shares were issued to entities
affiliated with Moore Capital Management, Inc., and 190,230 shares were issued
to entities affiliated with Global Retail Partners, L.P.
With respect to the above preferred stock issuances, shares issued to Bill
Gross' idealab! currently are held by idealab! Holdings, L.L.C., which is the
beneficial owner of more than 5% of GoTo.com's outstanding capital stock, and
William Gross, the Managing Member of idealab! Holdings, L.L.C., serves as a
director of GoTo.com. idealab! Capital Management I, LLC is the beneficial owner
of more than 5% of GoTo.com's outstanding capital stock, and William Gross and
William Elkus, Managing Directors of idealab! Capital Management I, LLC, serve
as directors of GoTo.com. Draper Fisher Jurvetson is the beneficial owner of
more than 5% of GoTo.com's outstanding capital stock, and Timothy Draper, a
principal of Draper Fisher Jurvetson, serves as a director of GoTo.com. Moore
Capital Management, Inc. is the beneficial owner of more than 5% of GoTo.com's
outstanding capital stock, and Alan Colner, a principal of Moore Capital
Management, Inc., serves as a director of GoTo.com. Global Retail Partners, L.P.
and its affiliates are the beneficial owner of more than 5% of GoTo.com's
outstanding capital stock, and Linda Fayne Levinson, a principal of Global
Retail Partners, L.P., serves as a director of GoTo.com.
On October 7, 1998, GoTo.com entered into a lease with Bill Gross' idealab!
for approximately 10,000 square feet of office space. The lease term is from
October 7, 1998
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<PAGE> 56
until January 31, 2003, and the lease provides for a rate of $2.00 per square
foot per month, to increase by $0.10 each year of the lease term.
From GoTo.com's inception until March 31, 1999, Bill Gross' idealab!
provided GoTo.com with management services, such as payroll and benefits
administration, facilities management and accounting services. Bill Gross'
idealab! also currently provides GoTo.com with Internet connection and e-mail
services, as well as a small number of administrative services.
GoTo.com has entered into Change in Control Severance Agreements with Ted
Meisel, Todd Tappin, Harry Chandler, James B. Gallinatti Jr., Stephanie A.
Sarka, Talmadge O'Neill, Tom Soulanille, Gregory Robleski, Dan Scholnick, Erik
Hovanec and Joshua Metzger, who are employees of GoTo.com. These agreements
provide that, in the event of the employee's involuntary termination without
cause within 12 months after a change in control of GoTo.com, the employee will
be entitled to six months of severance pay, potential payments for health care
continuation coverage and immediate vesting of his or her options.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of GoTo.com's common stock as of April 14, 1999, by the
following individuals or groups:
- each person or entity who is known by GoTo.com to own beneficially more
than 5% of GoTo.com's outstanding stock
- each of the Named Executive Officers
- each director of GoTo.com
- all directors and executive officers as a group
Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table below have sole voting and investment power
with respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on
38,238,352 shares of common stock outstanding as of April 14, 1999, as adjusted
to reflect the conversion of all outstanding shares of preferred stock upon the
closing of this offering.
To the extent that any shares are issued upon exercise of options, warrants
or other rights to acquire GoTo.com's capital stock that are presently
outstanding or granted in the future or reserved for future issuance under
GoTo.com's stock plans, there will be further dilution to new public investors.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. GoTo.com has granted the underwriters an option
to purchase up to shares to cover over-allotments, if any.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS TABLE
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
---------------------- -----------------------
NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
idealab! Holdings, L.L.C.(1)......... 9,192,882 24.0%
Entities affiliated with idealab!
Capital Management I, LLC(2)...... 3,930,905 10.3
Entities affiliated with Draper
Fisher Jurvetson(3)............... 4,678,800 12.2
Entities affiliated with Moore
Capital Management, Inc.(4)....... 6,070,956 15.9
Global Retail Partners, L.P. and
affiliated entities(5)............ 2,020,673 5.3
DIRECTORS AND OFFICERS:
Jeffrey S. Brewer(6)................. 1,586,869 4.1
Alan Colner(7)....................... 6,070,956 15.9
Timothy Draper(8).................... 4,901,688 12.8
William Elkus(9)..................... 3,930,905 10.3
William Gross(10).................... 13,123,787 34.3
Robert M. Kavner(11)................. 395,871 1.0
Linda Fayne Levinson(12)............. 2,020,673 5.3
All directors and officers as a group
(12 persons)(13)..................... 29,956,169 75.9
</TABLE>
- -------------------------
(1) The address of idealab! Holdings, L.L.C. is 130 West Union Street,
Pasadena, California 91103.
(2) Includes 2,623,134 shares held of record by idealab! Capital Partners I-A,
LP, and 1,307,771 shares held of record by idealab! Capital Partners I-B,
LP. idealab! Capital Management I, LLC is the general partner of idealab!
Capital Partners I-A, LP and idealab! Capital Partners I-B, LP, and
exercises voting and investment power over the shares held by those
entities. The address of idealab! Capital Management I, LLC is 130 West
Union Street, Pasadena, California 91103.
(3) Includes 317,773 shares held of record by Draper Fisher Partners Fund IV,
L.L.C., 139,193 shares held of record by Draper Associates LP and 4,221,834
shares held of record by Draper Fisher Associates Fund IV, L.P. The address
of Draper Fisher Jurvetson is 400 Seaport Court, Suite 250, Redwood City,
California 94063.
(4) Includes 3,838,074 shares held of record by Moore Global Investments, Ltd.,
1,382,948 shares held of record by Multi-Strategies Fund Ltd., 303,548
shares held of record by Multi-Strategies Fund, L.P., and 546,386 shares
held of record by Remington Investment Strategies, L.P. Moore Capital
Management, Inc. exercises voting and investment power with respect to
portfolio assets held for the accounts of Moore Global Investments, Ltd.
and Multi-Strategies Fund Ltd. Moore Capital Advisors, L.L.C. is the sole
general partner of Multi-Strategies Fund, L.P. and Remington Investment
Strategies, L.P. Mr. Louis M. Bacon is the majority shareholder of Moore
Capital Management, Inc. and is the majority equity holder of Moore Capital
Advisors, L.L.C. As a result, Mr. Bacon, though he disclaims beneficial
ownership of such shares, may be deemed to be the beneficial owner of the
aggregate shares held by Moore Global Investments, Ltd., Multi-Strategies
Fund Ltd., Multi-Strategies Fund, L.P. and Remington Investment Strategies,
L.P. The address of Moore Capital Management, Inc. is 1251 Avenue of the
Americas, 53rd Floor, New York, New York 10020.
(5) Includes 1,295,547 shares held of record by Global Retail Partners, L.P.,
386,047 shares held of record by DLJ Diversified Partners, L.P., 143,365
shares held of record by DLJ Diversified Partners-A, L.P., 84,221 shares
held of record by GRP Partners, L.P., 89,196 shares held of record by
Global Retail Partners Funding Inc. and 22,297 shares held of record by DLJ
ESC II, L.P. The address of Global Retail Partners, L.P. is 2121 Avenue of
the Stars, Suite 1630, Los Angeles, California 90067.
55
<PAGE> 59
(6) Includes 1,057,913 shares subject to a right of repurchase by GoTo.com as
of April 14, 1999.
(7) Represents 6,070,956 shares held of record by entities affiliated with
Moore Capital Management, Inc. Mr. Colner serves as Managing Director,
Private Equity Investments, at Moore Capital Management, Inc., which is the
trading advisor of Moore Global Investments, Ltd. and Multi-Strategies Fund
Ltd. He does not have voting or investment power with respect to the shares
of securities owned by Moore Global Investments, Ltd., Multi-Strategies
Fund Ltd., Multi-Strategies Fund, L.P. or Remington Investment Strategies,
L.P., and disclaims beneficial ownership of such shares.
(8) Includes 4,678,800 shares held of record by entities affiliated with Draper
Fisher Jurvetson and 222,888 shares held of record by the Timothy Draper
Living Trust. Mr. Draper is a Managing Director of Draper Fisher Jurvetson
and a trustee of the Timothy Draper Living Trust, and exercises voting and
investment power over shares held beneficially by those entities.
(9) Represents 3,930,905 shares held of record by entities affiliated with
idealab! Capital Management I, LLC. Mr. Elkus is a Managing Director of
idealab! Capital Management I, LLC, and exercises voting and investment
control over shares held by that entity.
(10) Represents 9,192,882 shares held of record by idealab! Holdings, L.L.C. and
3,930,905 shares held of record by entities affiliated with idealab!
Capital Management I, LLC. Mr. Gross is the Managing Member of idealab!
Holdings, L.L.C. and a Managing Director of idealab! Capital Management I,
LLC, and exercises voting and investment power over shares held
beneficially by those entities.
(11) Includes options to purchase 311,417 shares, 249,133 of which, if
purchased, would be subject to a right of repurchase by GoTo.com as of
April 14, 1999. Although 62,284 of Mr. Kavner's options to purchase shares
were vested as of April 14, 1999, all of his 311,417 options to purchase
shares will vest as of the closing of this offering.
(12) Represents 2,020,673 shares held of record by Global Retail Partners, L.P.
and its affiliates. Ms. Levinson is a principal of Global Retail Partners,
L.P. Ms. Levinson disclaims beneficial ownership of all shares owned by
Global Retail Partners, L.P. and its affiliates, except for any
proportional interest in such shares.
(13) Includes 1,691,917 shares that are subject to repurchase by GoTo.com as of
April 14, 1999, and 552,224 options to purchase shares which, if exercised,
would be subject to repurchase by GoTo.com as of April 14, 1999.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, GoTo.com will be authorized to issue
200,000,000 shares of common stock, $0.0001 par value, and 10,000,000 shares of
undesignated preferred stock, $0.0001 par value. The following description of
GoTo.com's capital stock does not purport to be complete and is subject to and
qualified in its entirety by GoTo.com's certificate of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of March 31, 1999, there were 32,902,967 shares of common stock
outstanding, which were held of record by approximately 100 stockholders, as
adjusted for conversion of all outstanding shares of convertible preferred stock
into an aggregate of 19,493,147 shares of common stock, which will occur upon
the closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of GoTo.com, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The holders of
common stock have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of GoTo.com without further
action by the stockholders.
Upon the completion of this offering, no shares of preferred stock will be
outstanding, and GoTo.com has no present plans to issue any shares of preferred
stock.
57
<PAGE> 61
WARRANTS
At March 31, 1999, there were warrants outstanding to purchase 104,971
shares of common stock. All such warrants terminate immediately prior to an
initial public offering of GoTo.com's common stock.
REGISTRATION RIGHTS
The holders of 23,121,594 shares of common stock upon conversion of
GoTo.com (the "registrable securities") are entitled to certain rights with
respect to registration of such shares under the Securities Act of 1933. These
rights are provided under the terms of agreements between GoTo.com and the
holders of registrable securities, as set forth below.
Pursuant to the Series A Preferred Stockholders' Rights Agreement, the
holders of 471,111 shares of common stock issued upon conversion of the Series A
Preferred Stock of GoTo.com have the following rights. The holders of at least
50% of the then-outstanding registrable securities issued upon conversion of the
Series A Preferred Stock ("Series A Conversion Stock") may require on two
separate occasions that GoTo.com register their shares for public resale on Form
S-3, if the value of the securities to be registered is at least $500,000. In
the event that, after an initial public offering with anticipated proceeds of at
least $5,000,000, GoTo.com elects to register any of its shares of common stock
for purposes of effecting any public offering, the holders of Series A
Conversion Stock are entitled to include their shares of common stock in the
registration, although GoTo.com may reduce the number of shares proposed to be
registered in view of market conditions. All such registration rights will
terminate on the third anniversary following the consummation of this offering
or, with respect to each holder of Series A Conversion Stock, at such time as
the holder (i) is able to sell all Series A Conversion Stock held by the holder
under Rule 144 in a three-month period or (ii) is entitled to sell all Series A
Conversion Stock held by it pursuant to Rule 144(k) of the Securities Act.
Pursuant to the Series B Preferred Stockholders' Rights Agreement, the
holders of 8,311,688 shares of common stock issued upon conversion of the Series
B Preferred Stock of GoTo.com have the following rights. The holders of at least
50% of the then-outstanding registrable securities issued upon conversion of the
Series B Preferred Stock ("Series B Conversion Stock") may require on two
separate occasions that GoTo.com register their shares for public resale on Form
S-3, if the value of the securities to be registered is at least $500,000. In
the event that, after an initial public offering with anticipated proceeds of at
least $5,000,000, GoTo.com elects to register any of its shares of common stock
for purposes of effecting any public offering, the holders of Series B
Conversion Stock are entitled to include their shares of common stock in the
registration, although GoTo.com may reduce the number of shares proposed to be
registered in view of market conditions. All such registration rights will
terminate on the third anniversary following the consummation of this offering
or, with respect to each holder of Series B Conversion Stock, at such time as
the holder (i) is able to sell all Series B Conversion Stock held by the holder
under Rule 144 in a three-month period or (ii) is entitled to sell all Series B
Conversion Stock held by it pursuant to Rule 144(k) of the Securities Act.
Pursuant to the Series C Preferred Stockholders' Rights Agreement, the
holders of 10,710,348 shares of common stock issued upon conversion of the
Series C Preferred Stock of GoTo.com have the following rights. Beginning one
year from the date of an initial public offering of common stock with
anticipated proceeds of at least $5,000,000, the holders of at least 50% of the
then-outstanding registrable securities issued upon
58
<PAGE> 62
conversion of the Series C Preferred Stock ("Series C Conversion Stock") may
require on two separate occasions that GoTo.com register their shares for public
resale on Form S-3 or Form S-1, if the value of the securities to be registered
is at least $2,000,000 in the case of a Form S-1 and at least $500,000 in the
case of a Form S-3. In the event that, after an initial public offering with
anticipated proceeds of at least $5,000,000, GoTo.com elects to register any of
its shares of common stock for purposes of effecting any public offering, the
holders of Series C Conversion Stock are entitled to include their shares of
common stock in the registration, although GoTo.com may reduce the number of
shares proposed to be registered in view of market conditions. All such
registration rights will terminate on the fifth anniversary following the
consummation of this offering or, with respect to each holder of Series C
Conversion Stock, at such time as the holder (i) holds less than 1% of the total
outstanding shares of common stock of GoTo.com or (ii) is entitled to sell all
Series C Conversion Stock held by it pursuant to Rule 144(k) of the Securities
Act.
Pursuant to the Series D Preferred Stockholders' Rights Agreement, the
holders of 3,628,447 shares of common stock issued upon conversion of the Series
D Preferred Stock of GoTo.com have the following rights. Beginning one year from
the date of an initial public offering of common stock with anticipated proceeds
of at least $30,000,000 at a per share price of at least $2.60, the holders of
at least 50% of the then-outstanding registrable securities issued upon
conversion of the Series D Preferred Stock ("Series D Conversion Stock") may
require on two separate occasions that GoTo.com register their shares for public
resale on Form S-3 or Form S-1, if the value of the securities to be registered
is at least $2,000,000 in the case of a Form S-1 and at least $500,000 in the
case of a Form S-3. In the event that, after an initial public offering with
anticipated proceeds of at least $30,000,000 at a per share price of at least
$2.60, GoTo.com elects to register any of its shares of common stock for
purposes of effecting any public offering, the holders of Series D Conversion
Stock are entitled to include their shares of common stock in the registration,
although GoTo.com may reduce the number of shares proposed to be registered in
view of market conditions. All such registration rights will terminate on the
fifth anniversary following the consummation of this offering or, with respect
to each holder of Series D Conversion Stock, at such time as the holder (i)
holds less than 1% of the total outstanding shares of common stock of GoTo.com
or (ii) is entitled to sell all Series D Conversion Stock held by it pursuant to
Rule 144(k) of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and GoTo.com's certificate of
incorporation and bylaws could make the following more difficult:
- the acquisition of GoTo.com by means of a tender offer;
- acquisition of GoTo.com by means of a proxy contest or otherwise; or
- the removal of GoTo.com's incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
GoTo.com to first negotiate with GoTo.com's board of directors. GoTo.com
believes that the benefits of increased protection of its potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire
or restructure GoTo.com outweigh the disadvantages of
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<PAGE> 63
discouraging such proposals, because negotiation of such proposals could result
in an improvement of their terms.
Election and Removal of Directors. GoTo.com's board of directors is divided
into three classes. The directors in each class will serve for a three-year
term, one class being elected each year by GoTo.com's stockholders. See
"Management-Classified Board." This system of electing and removing directors
may tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of GoTo.com, because it generally makes it more
difficult for stockholders to replace a majority of the directors.
Stockholder Meetings. Under GoTo.com's bylaws, only the board of directors,
the chairman of the board and the president may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. GoTo.com's bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
Delaware Anti-Takeover Law. GoTo.com is subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with affiliates
and associates, owns or within three years prior to the determination of
interested stockholder status, did own, 15% or more of a corporation's voting
stock. The existence of this provision may have an anti-takeover effect with
respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
Elimination of Stockholder Action By Written Consent. GoTo.com's
certificate of incorporation eliminates the right of stockholders to act by
written consent without a meeting.
Absence of Cumulative Voting. GoTo.com's certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of GoTo.com. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of GoTo.com.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services L.L.C.
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<PAGE> 64
NASDAQ NATIONAL MARKET LISTING
GoTo.com has applied for listing of its shares on the Nasdaq National
Market under the symbol "GOTO."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock of
GoTo.com, and there can be no assurance that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair GoTo.com's ability to raise capital through sale of its equity
securities. As described below, no shares currently outstanding will be
available for sale immediately after this offering because of certain
contractual restrictions on resale. Sales of substantial amounts of common stock
of GoTo.com in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of GoTo.com to raise equity
capital in the future.
Upon completion of this offering, GoTo.com will have outstanding
shares of common stock based upon shares outstanding as of April 14, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants prior to completion of this offering. Of
these shares, the shares sold in this offering will be freely tradable
without restriction under the Securities Act except for any shares purchased by
"affiliates" of GoTo.com, as that term is defined in Rule 144 under the
Securities Act of 1933. The remaining 38,238,352 shares of common stock held by
existing stockholders are "Restricted Shares" as that term is defined in Rule
144. Almost all such Restricted Shares are subject to lock-up agreements
providing that, with certain limited exceptions, the stockholder will not offer,
sell, contract to sell or otherwise dispose of any common stock or any
securities that are convertible into common stock for a period of 180 days after
the date of this prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette. As a result of these lock-up agreements, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, none of these shares will be resellable until 181 days after the date
of this prospectus. Beginning 181 days after the date of this prospectus,
approximately 32,659,264 Restricted Shares will be eligible for sale in the
public market, all of which are subject to volume limitations under Rule 144,
except 1,556,667 shares eligible for sale under Rule 144(k) and 4,672,896 shares
eligible for sale under Rule 701. Of those Restricted Shares not eligible for
sale beginning 181 days after the date of this prospectus, 1,830,443 Restricted
Shares will be eligible for sale on December 14, 1999, 9,087 Restricted Shares
will be eligible for sale on December 22, 1999, 111,111 Restricted Shares will
be eligible for sale on February 10, 2000, and 3,628,447 shares will be eligible
for sale on April 14, 2000, all of which are subject to volume limitations under
Rule 144. In addition, as of April 14, 1999, there were outstanding 1,813,440
options and warrants to purchase 104,971 shares of common stock, some of which
will be exercised prior to this offering. All such options and warrants are
subject to lock-up agreements. Donaldson, Lufkin & Jenrette may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements; however, any release shall apply
pro-rata to all stockholders subject to the lock-up agreements.
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<PAGE> 65
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned Restricted
Shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about GoTo.com. Under Rule 144(k), a person who is not deemed to have been an
affiliate of GoTo.com at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of or
consultant to GoTo.com who purchased shares under a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
such shares. However, all Rule 701 shares are subject to lock-up agreements and
will only become eligible for sale at the earlier of the expiration of the
180-day lock-up agreements or no sooner than 90 days after the offering upon
obtaining the prior written consent of Donaldson, Lufkin & Jenrette.
Following the effectiveness of this offering, GoTo.com will file a
Registration Statement on Form S-8 registering 10,500,000 shares of common stock
subject to outstanding options or reserved for future issuance under its stock
plans. As of April 14, 1999, options to purchase a total of 1,813,440 shares
were outstanding and 3,827,104 shares were reserved for future issuance under
GoTo.com's stock plan. Common stock issued upon exercise of outstanding vested
options or issued under GoTo.com's purchase plan, other than common stock issued
to affiliates of GoTo.com, is available for immediate resale in the open market.
Also beginning six months after the date of this offering, holders of
23,121,594 Restricted Shares will be entitled to certain registration rights for
sale in the public market. See "Description of Capital Stock--Registration
Rights." Registration of such shares under the Securities Act would result in
such shares becoming freely tradable without restriction under the Securities
Act, except for shares purchased by affiliates, immediately upon the
effectiveness of such registration.
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<PAGE> 66
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are
represented by Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
Smith Barney Inc. and Thomas Weisel Partners LLC, have severally agreed to
purchase from GoTo.com the respective number of shares of common stock set forth
opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
------------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Salomon Smith Barney Inc....................................
Thomas Weisel Partners LLC..................................
Total.............................................
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of legal matters
concerning the offering and to condition precedents that must be satisfied by
GoTo.com. The underwriters are obligated to purchase and accept delivery of all
the shares of common stock offered hereby, other than those shares covered by
the over-allotment option described below, if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to dealers, including the
underwriters, at such price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the Representatives at any time without notice. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
An electronic prospectus will be available on the Web site maintained by
DLJdirect Inc., a selected dealer and an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation. The underwriters have agreed to allocate a
limited number of shares to DLJdirect Inc. for sale to its brokerage account
holders.
GoTo.com has granted to the underwriters an option, exercisable for 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of common stock at
the initial public offering price less underwriting discounts and commission.
The underwriters may exercise the option solely to cover over-allotments, if
any, made in connection with the offering. To the extent that the underwriters
exercise the option, each underwriter will become obligated, subject to
conditions contained in the underwriting agreement, to purchase its pro rata
portion of such additional shares based on the underwriters' percentage
underwriting commitment as indicated in the above table.
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GoTo.com has agreed to indemnify the underwriters against liabilities which
may arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.
GoTo.com's executive officers, directors and certain other stockholders and
option holders have agreed not to:
- Offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock, other than shares
acquired in the initial public offering or on the Nasdaq National Market,
or any securities convertible into or exercisable or exchangeable for
common stock
- Enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any such transaction described above is to be
settled by delivery of common stock or other securities, in cash, or
otherwise.
Donaldson, Lufkin & Jenrette Securities Corporation may choose to release
some of these shares from such restrictions prior to the expiration of the
180-day period lock-up period, although it has no current intention of doing so.
In addition, during such 180-day period, GoTo.com has also agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and stockholders of GoTo.com have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered will be determined by negotiation among GoTo.com and the underwriters.
The factors to be considered in determining the initial public offering price
include:
- The history of and the prospects for the industry in which GoTo.com
competes
- The past and present operations of GoTo.com
- The historical results of operations of GoTo.com
- The prospects for future earnings of GoTo.com
- The recent market prices of securities of generally comparable companies
- The general condition of the securities markets at the time of the
offering
Other than in the Unites States, no action has been taken by GoTo.com or
the underwriters that would permit a public offering of the shares of common
stock offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to
64
<PAGE> 68
inform themselves about and observe any restrictions relating to the offering
and the distribution of this prospectus. This prospectus does not constitute an
offer to sell or a solicitation of any offer to buy any shares of common stock
offered in any jurisdiction in which such an offer or a solicitation is
unlawful.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot the offering,
creating a syndicate short position. The underwriters may bid for and stabilize
the price of the common stock. In addition, the underwriting syndicate may
reclaim selling concessions from syndicate members and selected dealers if they
repurchase previously distributed common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
Global Retail Partners, L.P. and its affiliates, each an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation, are stockholders of
GoTo.com, beneficially owning approximately % of GoTo.com's outstanding
common stock following completion of this offering, and Linda Fayne Levinson, a
director of GoTo.com, is a principal of Global Retail Partners, L.P. See
"Principal Stockholders" and "Certain Transactions."
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 20 filed
public offerings of equity securities, of which six have been completed, and has
acted as a syndicate member in an additional eight public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
GoTo.com or any of its officers, directors or controlling persons, except with
respect to its contractual relationship with GoTo.com pursuant to the
underwriting agreement entered into in connection with this offering.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
GoTo.com by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the underwriters
by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California. As of the date of this prospectus, certain investment partnerships
composed of certain current and former members of and persons associated with
Wilson Sonsini Goodrich & Rosati, Professional Corporation, as well as certain
individual attorneys of this firm, beneficially own an aggregate of 164,894
shares of GoTo.com's common stock on an as-converted to common stock basis.
EXPERTS
The financial statements of GoTo.com, Inc. as of December 31, 1997 and 1998
and for the period from September 15, 1997 (inception) through December 31, 1997
and the year ended December 31, 1998 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their
65
<PAGE> 69
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
GoTo.com has filed with the Securities and Exchange Commission a
registration statement on Form S-1 with respect to the common stock offered by
this prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information with respect to GoTo.com and its common
stock, see the registration statement and the exhibits and schedules thereto.
Any document GoTo.com files may be read and copied at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information about the
public reference rooms. GoTo.com's filings with the Commission are also
available to the public from the Commission's Web site at http://www.sec.gov.
Upon completion of this offering, GoTo.com will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, accordingly, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the
Commission's public reference rooms, and the Web site of the Commission referred
to above.
66
<PAGE> 70
GOTO.COM, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
FINANCIAL STATEMENTS
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
GoTo.com, Inc.
We have audited the accompanying balance sheets of GoTo.com, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the period from September 15, 1997
(inception) through December 31, 1997 and for the year ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GoTo.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from September 15, 1997 (inception) through December 31, 1997,
and for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
April 2, 1999, except for the
third paragraph of Note 1, as
to which the date is April 14, 1999
F-2
<PAGE> 72
GOTO.COM, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
AS OF DECEMBER 31 DECEMBER 31
----------------- 1998
1997 1998 -------------
(UNAUDITED)
SEE NOTE 7
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 87 $ 16,357
Accounts receivable, net of allowance of $0 and $86 for
1997 and 1998, respectively............................. 22 356
Other receivables......................................... -- 90
Prepaid expenses.......................................... -- 60
Prepaid marketing expenses................................ -- 1,741
----- --------
Total current assets........................................ 109 18,604
Property and equipment:
Furniture and fixtures.................................... -- 17
Computer hardware......................................... 56 1,033
Computer software......................................... 1 561
----- --------
57 1,611
Accumulated depreciation and amortization................. (3) (275)
----- --------
54 1,336
Other assets................................................ 51 29
----- --------
Total assets................................................ $ 214 $ 19,969
===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 91 $ 2,881
Accrued expenses.......................................... -- 217
Deferred revenues......................................... -- 181
Current portion of capital lease obligations.............. -- 110
----- --------
Total current liabilities................................... 91 3,389
Long-term capital lease obligations......................... -- 183
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock; $.0001 par value, 20,187
shares authorized:
Series A Preferred Stock; liquidation preference over
Common Stockholders; none and $212 at December 31, 1997
and 1998, respectively
Shares issued and outstanding--none and 471 at
December 31, 1997 and 1998, respectively............. -- 212 $ --
Series B and C Preferred Stock; aggregate liquidation
preference over Common Stockholders and Series A
Preferred Stockholders; $28,634 at December 31, 1998
Shares issued and outstanding--19,022 at December 31,
1998................................................. -- 28,433 --
Common Stock, $.0001 par value, 45,000 shares
authorized; Shares issued and outstanding--10,017 and
10,444 at December 31, 1997 and 1998, respectively,
(33,565 shares outstanding pro forma (unaudited))...... 1 1 3
Additional paid-in capital on Common Stock.............. 242 3,172 56,815
Deferred compensation................................... -- (1,587) (1,587)
Accumulated deficit..................................... (120) (13,834) (13,834)
----- -------- --------
Total stockholders' equity.................................. 123 16,397 41,397
----- -------- --------
Total liabilities and stockholders' equity.................. $ 214 $ 19,969 $ 44,969
===== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 73
GOTO.COM, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
------------- -----------
<S> <C> <C>
Revenue............................................. $ 22 $ 822
Cost of revenue..................................... 6 1,429
------------ -----------
Gross profit (loss)................................. 16 (607)
Operating expenses:
Marketing and sales............................... 65 9,645
General and administrative........................ 24 1,670
Product development............................... 46 1,274
Amortization of deferred compensation............. -- 833
------------ -----------
135 13,442
------------ -----------
Loss from operations................................ (119) (14,029)
Other income (expense):
Interest expense.................................. -- (19)
Interest income................................... -- 335
------------ -----------
Loss before provision for income taxes.............. (119) (13,713)
Provision for income taxes.......................... 1 1
------------ -----------
Net loss............................................ $ (120) $ (13,714)
============ ===========
Historical basic and dilutive net loss per share.... $ (0.01) $ (1.33)
Pro forma net loss per share........................ $ (0.73)
Weighted average shares used to compute historical
basic and dilutive net loss per share............. 9,869 10,305
Weighted average shares used to compute pro forma
net loss per share................................ 18,722
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
GOTO.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
SERIES A SERIES B AND C PAID-IN
CONVERTIBLE CONVERTIBLE COMMON CAPITAL ON
PREFERRED STOCK PREFERRED STOCK STOCK COMMON DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK COMPENSATION
------ ------ ---------- ------- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock at
September 15, 1997............. -- $ -- -- $ -- 10,017 $1 $ 242 $ --
Issuance of Series A Convertible
Preferred stock................ -- -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- --
--- ---- ---------- ------- ------ -- ------ -------
BALANCE AT DECEMBER 31, 1997....... -- 10,017 1 242 --
Issuance of Common Stock for cash
and services................... -- -- -- -- 427 -- 343 --
Issuance of Series A Convertible
Preferred Stock................ 471 212 -- -- -- -- -- --
Issuance of Series B Convertible
Preferred Stock and capital
contribution................... -- -- 8,312 6,281 -- -- 77 --
Issuance of Series C Convertible
Preferred Stock................ -- -- 10,710 22,152 -- -- -- --
Issuance of warrants............. -- -- -- -- -- -- 90 --
Stock option compensation........ -- -- -- -- -- -- 2,420 (2,420)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 833
Net loss......................... -- -- -- -- -- -- -- --
--- ---- ---------- ------- ------ -- ------ -------
BALANCE AT DECEMBER 31, 1998....... 471 $212 19,022 $28,433 10,444 $1 $3,172 $(1,587)
=== ==== ========== ======= ====== == ====== =======
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- --------
<S> <C> <C>
Issuance of Common Stock at
September 15, 1997............. $ -- $ 243
Issuance of Series A Convertible
Preferred stock................ -- --
Net loss......................... (120) (120)
-------- --------
BALANCE AT DECEMBER 31, 1997....... (120) 123
Issuance of Common Stock for cash
and services................... -- 343
Issuance of Series A Convertible
Preferred Stock................ -- 212
Issuance of Series B Convertible
Preferred Stock and capital
contribution................... -- 6,358
Issuance of Series C Convertible
Preferred Stock................ -- 22,152
Issuance of warrants............. -- 90
Stock option compensation........ -- --
Amortization of deferred
compensation................... -- 833
Net loss......................... (13,714) (13,714)
-------- --------
BALANCE AT DECEMBER 31, 1998....... $(13,834) $ 16,397
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
GOTO.COM, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM SEPTEMBER 15
1997 (INCEPTION) YEAR ENDED
THROUGH DECEMBER 31 DECEMBER 31
1997 1998
------------------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................. $(120) $(13,714)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred stock option
compensation.......................... -- 833
Other common stock and warrants
compensation.......................... -- 427
Depreciation and amortization............ 5 294
Changes in operating assets and
liabilities:
Accounts receivable...................... (22) (334)
Other receivables........................ -- (90)
Prepaid expenses and other current
assets................................ -- (60)
Prepaid marketing expenses............... -- (1,741)
Accounts payable and accrued expenses.... 91 3,007
Deferred revenues........................ -- 181
----- --------
Net cash used in operating activities.... (46) (11,197)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment............................. (57) (1,554)
Other assets............................. (53) --
----- --------
Net cash used in investing activities.... (110) (1,554)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Common
Stock................................. 243 6
Proceeds from the issuance of Preferred
Stock................................. -- 28,722
Proceeds from lease line................. -- 330
Repayments under lease line.............. -- (37)
----- --------
Net cash provided by financing
activities............................ 243 29,021
----- --------
Net increase in cash and cash
equivalents........................... 87 16,270
Cash and cash equivalents at beginning of
period................................ -- 87
----- --------
Cash and cash equivalents at end of
period................................ $ 87 $ 16,357
===== ========
Supplemental disclosures
Income taxes paid........................ $ -- $ 2
Interest paid............................ $ -- $ 11
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
GENERAL
GoTo.com, Inc. (the Company) was incorporated on September 15, 1997, in the
state of Delaware and officially launched its Web site on June 1, 1998. GoTo.com
operates an Internet marketplace where any online advertiser can bid in an
ongoing auction for introductions to self-qualified, prospective consumers.
Advertisers competitively bid on keyword search terms that are most relevant to
their business offerings. Advertisers are rank-ordered in search results based
on bid amounts, which are expressed as the amount the advertiser pays GoTo.com
for each consumer click-through to the advertiser's Web site. The advertiser
with the highest bid is listed first in the search results, with the remaining
advertisers appearing in descending bid amount order. Priority placement
increases the likelihood that a consumer will click-through to the advertiser's
Web site. Consumers access GoTo.com at our branded stand-alone Web site and
through Web sites that participate in our Search Syndication Network. The
Company operates in one reportable business segment.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern. The Company has raised $29.0
million in equity capital since its inception and has cash balances of $16.4
million as of December 31, 1998. However, the Company has incurred significant
operating losses and negative cash flows from operating activities since its
inception and will need to continue to increase revenues and possibly obtain
additional financing to continue to fund its operations and expansion strategy.
Management's plans with respect to these conditions include the receipt of
$25 million from the issuance of Series D Preferred Stock subsequent to December
31, 1998 (See Note 7). The Company believes that the proceeds raised through the
sale of the Series D Preferred Stock, in addition to revenue generated from
expansion of the Company's services in the market place will support the
Company's operations through 1999.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ materially from those
estimates.
REVENUE RECOGNITION
Revenue consists of search listing advertisements and banner
advertisements. Banner advertising arrangements are short-term in duration and
have no minimum guarantees.
F-7
<PAGE> 77
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Search listing advertising enables the advertisers to determine their
placement within the GoTo.com search term results by placing a bid (the price
they will pay when a user clicks-through to their site) for each keyword search
item that they select. The amount of the bid determines the placement of the
advertiser's site within the search results. Search listing advertisement
revenue is determined by multiplying the number of click-throughs on paid search
results by the price bid for the particular keyword listing at the time of the
click-through. Search listing advertising revenues are earned and recognized as
actual click-throughs occur to the extent the customer has deposited sufficient
funds with the Company or provided that the collection of any resulting
receivable is probable.
Banner advertisement arrangements provide for the Company to receive
specified amounts each time a customer's banner advertisement is made visible to
a user (an impression) and/or each time a user clicks-through to the
advertiser's web site. Banner advertisement revenue is recognized when earned
under the terms of the contractual arrangement with the advertiser or agency,
provided that collection of the receivable is probable. Under the terms of these
arrangements revenues are generally earned when the banner advertisement is
displayed or when the click-through occurs.
COST OF REVENUE
Cost of revenue consists primarily of the cost of serving the Company's Web
site and fees paid to outside resources that provide unpaid line item search
results and other outside resources that assist in placing, managing and
tracking banner advertisements. Cost associated with serving the Web site
includes salaries, depreciation of Web site equipment, co-location charges for
equipment, and software licensing fees.
PRODUCT DEVELOPMENT
Product development expenses consist of expenses incurred by the Company in
the development and creation of its Internet site. Product development expenses
include compensation and related expenses, costs of computer hardware and
software, and costs incurred in developing features and functionality of the
service. Product development costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
The Company considers those investments which are highly liquid, readily
convertible to cash and which mature within three months from the original date
of purchase as cash equivalents.
ONLINE MARKETING PARTNERS
The Company enters into short-term agreements with other internet companies
(partners) whereby, the Company provides search services within the partners'
Web sites or the partners provide a link to the Company's site. In some cases,
the Company pays the
F-8
<PAGE> 78
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
partners fees based on the term of the agreement, and amount of traffic the
Company receives from the web sites. Some of these fees are paid at the
beginning of the contract resulting in prepaid distribution partner fees and
some of the fees are billed during the term of the contracts resulting in
accrued partner fees. The fees are charged to marketing and sales expense
ratably over the contract or based on actual traffic received under the terms of
the agreements. A significant portion of the Company's revenue has been
generated from traffic provided by only a few of the Company's online marketing
partners.
The Company expenses advertising costs as incurred. For the period from
inception through December 31, 1997 and the year ended December 31, 1998, the
Company incurred advertising costs of $29,000 and $8.8 million, respectively.
CONCENTRATION OF CREDIT RISK
Accounts receivable are typically unsecured and are due from customers
primarily located in the United States. Credit losses have generally been within
management's expectations. At December 31, 1998 one customer represented 13% of
total accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method based upon estimated useful lives of the assets, which
range from two to five years. Leasehold improvements are recorded at cost.
Amortization is provided using the straight-line method over the shorter of the
term of the related lease or estimated useful lives of the assets.
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." The Company assesses the impairment of long-lived assets and
certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated future cash flows expected to
result from the use of the asset and its eventual disposition is less than its
carrying amount. No such impairment losses have been identified by the Company.
DEFERRED REVENUE
Deferred revenue represents all payments received from customers in excess
of revenue earned based on line item click-through activity and will be
recognized as actual click-throughs occur.
F-9
<PAGE> 79
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
ACCOUNTING FOR STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
stock awards granted subsequent to January 1, 1995, be recognized as
compensation expense based on their fair value at the date of grant.
Alternatively, a company may use Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees," and disclose pro forma income
amounts which would have resulted from recognizing such awards at their fair
value. The Company has elected to account for stock-based compensation expense
under APB No. 25 and make the required pro forma disclosures for compensation
(see Note 4).
EARNINGS (LOSS) PER SHARE COMPUTATION
Historical net loss per share is computed using the weighted average number
of shares of Common Stock outstanding. Historical basic and dilutive loss per
share are the same since shares associated with stock options and the
Convertible Preferred Stock are not included as they are antidilutive.
Pro forma net loss per share (unaudited) is computed using the weighted
average number of shares of Common Stock outstanding, including the pro forma
effects of the automatic conversion of the Company's Convertible Preferred Stock
into shares of the Company's Common Stock effective upon the closing of the
Company's initial public offering as if such conversion occurred at the issuance
date.
F-10
<PAGE> 80
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of basic and pro forma net
loss per share for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15, 1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ -----------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Numerator:
Net loss.................................. $ (120) $ (13,714)
=========== ============
Denominator:
Denominator for basic
calculation -- Weighted average
shares................................. 9,869 10,305
----------- ------------
Weighted average effect of pro forma
securities:
Series A Convertible Preferred Stock...... 360
Series B Convertible Preferred Stock...... 5,402
Series C Convertible Preferred Stock...... 2,655
------------
Denominator for pro forma calculation..... 18,722
============
Net loss per share:
Historical basic and diluted.............. $ (0.01) $ (1.33)
Pro forma (unaudited)..................... (0.73)
</TABLE>
2. INCOME TAXES
As a result of the net operating losses incurred since inception, no income
tax provision has been recorded except for state minimum taxes of approximately
$1,000 for 1997 and 1998. The following is a reconciliation of the statutory
federal income tax rate to the Company's effective income tax rate:
<TABLE>
<CAPTION>
SEPTEMBER 15, 1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Statutory federal rate...................... (34)% (34)%
State income taxes (benefit)................ (5) (5)
Valuation allowance......................... 41 37
Nondeductible stock compensation............ -- 3
Other....................................... (2) (1)
--- ---
--% --%
=== ===
</TABLE>
F-11
<PAGE> 81
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. INCOME TAXES (CONTINUED)
The components of the deferred tax assets and related valuation allowance
at December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1998
---- -------
(IN THOUSANDS)
<S> <C> <C>
Other....................................................... $ 7 $ 167
Net operating loss carryforwards............................ 43 4,955
---- -------
Deferred tax assets......................................... 50 5,122
Valuation allowance......................................... (50) (5,122)
---- -------
$ -- $ --
==== =======
</TABLE>
Due to the uncertainty surrounding the timing of realizing the benefits of
its deferred tax assets in future tax returns, the Company has recorded a
valuation allowance against its deferred tax assets.
The Company has net operating loss carryforwards for federal and state tax
purposes of approximately $12,438,000 expiring beginning in the years 2012
through 2018 for federal and 2005 through 2006 for state. The net operating
losses can be carried forward to offset future taxable income. Utilization of
the above carryforwards will be subject to utilization limitations, which may
inhibit the Company's ability to use carryforwards in the future.
The Company also has federal and state credit carryforwards of
approximately $28,000 and $22,000, respectively, expiring beginning in the years
2012 through 2018, which may be used to offset future liabilities.
F-12
<PAGE> 82
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
In November 1998, the Company amended its Certificate of Incorporation to,
among other matters, increase the total number of authorized shares of Common
and Preferred Stock to 45,000,000 and 20,187,401, respectively. In conjunction
with this amendment, the Company authorized 500,000 shares of Series A Preferred
Stock (Series A), 8,500,000 shares of Series B Preferred Stock (Series B), and
11,187,401 shares of Series C Preferred Stock (Series C).
As part of the Series B Preferred Stock financing the Company's founder
paid a consultant 111,111 shares of the Company's Common Stock owned by the
Company's founder for services provided in connection with the Series B
Preferred Stock financing. The exchange of the founder's shares was recorded at
the fair market value of the Common Stock, on the date of the exchange, as a
contribution to capital and cost of the Series B Preferred financing.
The following table summarizes the issuances of the Preferred Stock
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
AMOUNT ORIGINAL
(NET OF PER SHARE
SHARES ISSUANCE ISSUANCE
OUTSTANDING COST) PRICE DATE OF ISSUANCE
----------- -------------- --------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Series A............. 471 $ 212 $0.45 March 26, 1998
Series B............. 8,312 6,281 0.77 March 9, 1998
Series C............. 4,850 10,032 2.076 July 31, 1998
Series C............. 4,021 8,316 2.076 November 12, 1998
Series C............. 1,839 3,804 2.076 December 14, 1998
------ -------
19,493 $28,645
====== =======
</TABLE>
The following table is presented to summarize the Common Stock reserved for
future issuance upon conversion of the outstanding Preferred Stock, exercise of
warrants and stock options at December 31, 1998:
<TABLE>
<CAPTION>
COMMON SHARES
ISSUABLE UPON
CONVERSION
OR EXERCISE
DESCRIPTION OF INSTRUMENT -------------
<S> <C>
Series A Convertible Preferred Stock........................ 471,111
Series B Convertible Preferred Stock........................ 8,311,688
Series C Convertible Preferred Stock........................ 10,710,348
Stock Options outstanding................................... 5,000,471
Stock options available for future grant.................... 999,529
Common Stock purchase warrants.............................. 63,272
----------
Common Stock reserved....................................... 25,556,419
==========
</TABLE>
F-13
<PAGE> 83
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK
Each share of Preferred Stock is convertible, at the holder's option, into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $0.45 in the case of Series A, $0.77 in the case of
Series B, and $2.076 in the case of Series C by the Conversion Price, as
defined. At December 31, 1998, the Conversion Price of the Series A, Series B
and Series C Preferred Stock was $0.45, $0.77 and $2.076 respectively. The
Conversion Price is subject to adjustment based on certain anti-dilution
provisions. In the event of a Qualified Public Offering, as defined, of the
Company's equity securities with proceeds from such offering in the amount of
$30 million or greater and a per share selling price of $2.60 or greater, all
outstanding Preferred Stock will automatically be converted into Common Stock,
based on the then effective conversion ratios. The holders of the Preferred
Stocks also have certain registration rights, which under certain circumstances,
allow them to require the Company to register their shares at the expense of the
Company.
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series B and Series C are
entitled to receive prior and in preference to any distribution of any assets or
surplus funds to the holders of the Series A Preferred Stock and the holders of
the Common Stock in an amount per share equal to $0.77 and $2.076, respectively,
plus an amount equal to any dividends declared but unpaid on such shares. After
payment or setting apart of payment to the holders of the Series B and C, each
share of Series A Preferred Stock is entitled to receive, prior and in
preference to any distribution to Common Stock holders an amount per share equal
to $0.45 plus an amount equal to any dividends declared but unpaid on such
shares.
The voting rights of the Series A, Series B, and Series C are equal to one
vote for each share of Common Stock into which such Preferred Stock may be
converted. The holders of the Series B and C have certain specific voting
rights, as defined, with respect to the election of directors of the Company.
The Company's Amended and Restated Certificate of Incorporation include certain
protective provisions which require a majority vote of the holders of the Series
A, Series B and Series C with respect to certain actions of the board of
directors including changing the rights, preferences and privileges of the
Preferred Stockholders, changing the number of shares authorized of each Series,
repurchasing Common Stock, increasing or decreasing the members of the board of
directors, declaring a dividend on the Common Stock, and consummating a merger,
consolidation, reorganization or other business combination.
Each share of Series A, Series B and Series C entitles the holder to
receive, when and if declared by the board of directors, noncumulative dividends
in cash at an annual rate of $0.0315, $0.054 and $0.145 per share, respectively
(as adjusted for any stock splits, combinations and the like). Series B and
Series C dividends are payable in preference and prior to any payment of any
dividend on Series A Preferred Stock and the Common Stock. Dividends payable on
Series A Preferred Stock are payable in preference to any payment of any
dividend on the Common Stock.
F-14
<PAGE> 84
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
In September and November of 1998, the Company issued warrants in exchange
for certain consulting services to purchase 63,272 shares in total of the
Company's Common Stock at exercise prices ranging from $0.77 to $2.076 per
share. The warrants are fully exercisable upon issuance and expire upon the
earlier of 1) five years from the date of issuance, 2) a change in control of
the Company or 3) immediately before an initial public offering of the Company's
Common Stock. The deemed fair value of the warrants was $90,000 which was
recorded in general and administrative expenses in 1998.
DEFERRED STOCK OPTION COMPENSATION
The excess of the deemed fair value of the Company's Common Stock over the
exercise price of options granted during the year ended December 31, 1998 at the
date of grant amounted to an aggregate of $2,420,000. The deemed fair value of
the Common Stock was determined by the Company based on the selling prices of
contemporaneous sales of each Series of Preferred Stock considering the relative
rights and privileges of each security, the stages of development of the
Company's business and the inherent risks and perceived future potential of the
Company at the time of grant or issuance. The amortization of deferred
compensation will be charged to operations ratably over the vesting period of
the options. The typical vesting period of the options is 20% immediately upon
grant with the remaining balance vesting evenly over the following four years.
Of the $2,420,000 of stock option compensation, $833,000 was expensed during the
year ended December 31, 1998 and $1,587,000 was deferred and reflected as a
reduction of stockholders' equity as of December 31, 1998. The stock option
compensation relates only to stock options awarded to employees; while the
salaries and related benefits of these employees are included in the applicable
cost of revenue or operating expense line item.
OTHER STOCK COMPENSATION
In addition, the Company sold 427,195 shares of Common Stock to various
consultants at prices less than the deemed fair value of the Common Stock on the
day it was sold. The excess of the deemed fair value of the Common Stock on the
day it was sold aggregating $337,000 was recognized as consulting expense.
4. STOCK OPTION PLANS
The Company has a Stock Option Plan which provides for the granting of
options for the purchase of up to 6,000,000 shares of the Company's Common
Stock. Under terms of the plan, options may be granted to employees, nonemployee
directors or consultants at prices not less than the fair value at the date of
grant. Options granted to nonemployees are recorded at the value of negotiated
services received. All options are immediately exercisable, however, shares
issuable upon exercise of the option vest typically 20% immediately upon grant
of the option with the remaining balance vesting evenly over the
F-15
<PAGE> 85
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. STOCK OPTION PLANS (CONTINUED)
following four years. The Company has the right to repurchase unvested shares
issued upon exercise of the option.
Information relating to the outstanding stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at inception........................... -- --
Granted.......................................... 115 $0.44
Exercised........................................ -- --
Canceled......................................... -- --
----- -----
Outstanding at December 31, 1997................... 115 0.44
Granted.......................................... 4,888 0.15
Exercised........................................ -- --
Canceled......................................... (3) 0.15
----- -----
Outstanding at December 31, 1998................... 5,000 $0.16
===== =====
</TABLE>
The following table summarizes information regarding options outstanding
and options exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------ EXERCISABLE
WEIGHTED -----------------------------
AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE OF CONTRACTUAL EXERCISE AS OF EXERCISE
PRICES SHARES LIFE PRICE DECEMBER 31, 1998 PRICE
- --------------------- --------- ----------- -------- ----------------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
$0.15 - 0.45 5,000 6.9 years $0.16 1,367 $0.18
========= ========= ===== ========= =====
</TABLE>
Options available for future grant totaled 999,529 at December 31, 1998.
The fair value of these options were estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Risk free interest rate..................... 6% 5.14%
Expected lives (in years)................... 4 4
Dividend yield.............................. -- --
Expected volatility......................... -- --
</TABLE>
F-16
<PAGE> 86
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. STOCK OPTION PLANS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Under
Statement 123, the Company would have incurred an additional compensation
expense of zero and $55,000 for the period from inception through December 31,
1997 and for the year ended December 31, 1998, respectively.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net loss, as reported............................... $(120) $(13,714)
Pro forma net loss.................................. (120) (13,769)
Pro forma historical basic and diluted loss per
share............................................. (0.01) (1.34)
Pro forma loss per share............................ (0.01) (0.74)
</TABLE>
Applying SFAS 123 in the pro forma disclosure may not be representative of
the effects on pro forma net income (loss) for future years as options vest over
several years and additional awards are generally made each year.
5. RELATED PARTY TRANSACTIONS
During 1997 and 1998, the Company shared facilities and received certain
management services including certain accounting, payroll processing, access to
shared local area computer communications network, and general business
insurance from Bill Gross' idealab!, a significant stockholder of the Company.
Bill Gross' idealab! charges a management fee for the use of its facilities and
the services provided. The total management fee was $59,000 and $229,000 during
the period from inception through December 31, 1997, and the year ended December
31, 1998, respectively. Management believes these amounts are materially
representative of the fair value of services provided. In October 1998, the
Company entered into a lease agreement beginning in February 1999 (date of move
in), with Bill Gross' idealab! for office space in a building adjacent to the
Bill Gross' idealab! facility. From inception through March 1, 1998, the
Company's founder and significant stockholder was the President and Chief
Executive Officer of the Company and received no compensation for his service.
The value of these services was not material to the financial statements.
F-17
<PAGE> 87
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. COMMITMENTS AND CONTINGENCIES
LEASES
At December 31, 1998, future lease commitments, including the lease with
Bill Gross' idealab! discussed in Note 5, under these agreements were as
follows:
<TABLE>
<CAPTION>
RELATED PARTY
OPERATING CAPITAL
LEASE LEASE
------------- -------
(IN THOUSANDS)
<S> <C> <C>
1999..................................................... $ 220 $136
2000..................................................... 251 136
2001..................................................... 263 79
2002..................................................... 275 -
2003..................................................... 23 -
------ ----
Total minimum lease payments............................. $1,032 351
====== ----
Less amount representing interest........................ 58
----
$293
====
</TABLE>
Total rent expense was $2,000 and $116,000 during the period from July 1,
1997 (inception) through December 31, 1997, and the year ended December 31,
1998, respectively.
EQUIPMENT FINANCING ARRANGEMENT
At December 31, the Company had a line of credit arrangement with a leasing
institution that provides for a capital equipment lease line of up to a maximum
of $1,500,000. The terms of the agreement include a requirement for the Company
to keep an unrestricted cash balance of no less than $1.0 million at any time.
The Company was in compliance as of December 31, 1998. Under this agreement,
$1,207,000 was available for future financing transactions at December 31, 1998.
MARKETING PARTNER COMMITMENTS
The Company is obligated to make payments totaling $4.6 million in 1999
under contracts to provide search services to its marketing partners.
7. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)
From January 1, 1999 through March 31, 1999, the Company granted options to
purchase 748,871 shares of Common Stock at exercise prices ranging from $0.30 to
$1.50 and on April 6 and April 12, 1999 granted options to purchase 413,454 and
335,540 shares of Common Stock at exercise prices of $2.50 and $6.20 per share,
respectively. The excess of the deemed fair market value of the Common Stock,
determined using a methodology similar to that applied during 1998, over the
exercise prices amounted to an aggregate of
F-18
<PAGE> 88
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)
(CONTINUED)
$3,508,000, $1,530,000 and zero for the grants made in the quarter ended March
31, 1999 and on April 6 and April 12, 1999, respectively. The Company intends to
record the vested portion of these amounts as compensation expense in the
applicable period and the unvested portion will be recorded as deferred
compensation expense to be recognized over the vesting periods.
On April 14, 1999, the Company issued 3,628,447 shares of Series D
Preferred Stock for $6.89 per share and gross proceeds of approximately $25
million. The Series D Preferred Stock carry rights and privileges similar to
those of the Series B and C Preferred Stock and automatically convert into
Common Stock upon the closing of a qualified initial public offering, as
defined.
In April 1999, the Board of Directors approved the filing of the Company's
Registration Statement on Form S-1 with the Securities and Exchange Commission
to reflect the proposed sale by the Company of shares of Common Stock.
If the initial public offering is consummated under the terms presently
anticipated, all of the outstanding Preferred Stock will automatically convert
into Common Stock. On an unaudited pro forma basis, using the conversion price
as of December 31, 1998, 33,565,196 shares of Common Stock would have been
issued and outstanding assuming all of the outstanding Preferred Stock,
including the Series D Preferred Stock issued in April 1999, converted into
Common Stock as of December 31, 1998. The pro forma effect on stockholders'
equity, as adjusted for the assumed conversion of the Preferred Stock, including
the Series D Preferred Stock issued in April 1999, is set forth on the
accompanying balance sheet.
In April 1999 the Board of Directors also approved the establishment, upon
the closing of the Company's initial public offering, of the 1999 Employee Stock
Purchase Plan (1999 Purchase Plan) and the amended and restated 1998 Stock Plan
(1998 Plan). The 1999 Purchase Plan initially reserves 2,000,000 shares of
Common Stock for future issuance which will increase annually by the lesser of
1,000,000 shares, 3% of the outstanding shares on such date, or a lesser amount
determined by the Board. The 1999 Purchase Plan provides for successive six
month offering periods and allows eligible employees to participate in the plan
through payroll deductions that will be used to purchase Common Stock at the end
of each six month period for the lesser of 85% of the price of the Common Stock
at the beginning or the end of the six month offering period.
The 1998 Plan provides for the granting of stock options to employees,
directors and consultants. A total of 8,500,000 shares of Common Stock has been
initially reserved for issuance under the 1998 Plan and this amount will
increase annually by the lessor of 7,500,000 shares, 4% of the outstanding
shares on such date, or a lesser amount determined by the Board of Directors.
Upon completion of the Company's initial public offering the number of
common and undesignated preferred shares authorized for issuance will be
200,000,000 and 10,000,000, respectively.
F-19
<PAGE> 89
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO]
SHARES OF COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS LLC
------------------------
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of GoTo.com
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by GoTo.com in connection with
the sale of common stock being registered. All amounts are estimates, except the
SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee....................................... $ 19,460
NASD filing fee............................................ 7,500
Nasdaq National Market listing fee......................... 100,000
Printing and engraving costs............................... 250,000
Legal fees and expenses.................................... 450,000
Accounting fees and expenses............................... 200,000
Blue Sky fees and expenses................................. 10,000
Transfer Agent and Registrar fees.......................... 10,000
Miscellaneous expenses..................................... 53,040
----------
Total............................................ $1,100,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article V of GoTo.com's Amended and Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of GoTo.com's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of GoTo.com, if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of GoTo.com, and, with respect to any criminal
action or proceeding, the indemnified party had no reason to believe his or her
conduct was unlawful.
GoTo.com has entered into indemnification agreements with its directors and
certain officers, in addition to indemnification provided for in its Bylaws, and
intends to enter into indemnification agreements with any new directors and
certain new officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of GoTo.com and its executive officers and
directors, and by GoTo.com of the underwriters for certain liabilities,
including liabilities arising under the Securities Act of 1933, in connection
with matters specifically provided in writing by the underwriters for inclusion
in the Registration Statement.
II-1
<PAGE> 91
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 15, 1997, the date of GoTo.com's incorporation, GoTo.com
has issued and sold unregistered securities in the amounts, at the times, and
for the aggregate amounts of consideration listed as follows:
1. On September 16, 1997, GoTo.com issued 8,400,000 shares of Common Stock
to Bill Gross' idealab! for an aggregate offering price of $1,260,000.
2. On September 30, 1997, GoTo.com issued 1,516,667 shares of Common Stock
to 12 investors for an aggregate offering price of $227,500.05. On September 30,
1997, GoTo.com also purchased certain assets in exchange for 100,000 shares of
Common Stock valued at an aggregate price of $15,000.
3. On April 14, 1998, GoTo.com issued 276,084 shares of Common Stock to
consultants in exchange for services rendered worth $41,412.60.
4. On March 26, 1998, GoTo.com issued 471,111 shares of Series A Preferred
Stock to Bill Gross' idealab! and three other investors for an aggregate
offering price of $211,999.95.
5. On April 7, 1998, GoTo.com issued 111,111 shares of Common Stock to
Bruce Hendricks for an aggregate offering price of $2,222.22.
6. On May 7, 1998, GoTo.com issued 8,311,688 shares of Series B Preferred
Stock to entities affiliated with idealab! Capital Management I, LLC, entities
and individuals affiliated with Draper Fisher Jurvetson, entities affiliated
with Moore Capital Management, Inc. and to other investors at a price of $0.77
per share, for an aggregate offering price of $6,399,999.70.
7. On July 31, 1998, GoTo.com issued 4,850,001 shares of Series C Preferred
Stock to entities affiliated with Moore Capital Management, Inc. at a price of
$2.076 per share, for an aggregate offering price of $10,068,602.07.
8. On November 12, 1998, GoTo.com issued 4,020,817 shares of Series C
Preferred Stock to Kline Hawkes California SBIC, L.P., entities affiliated with
Integral Capital Partners, entities affiliated with idealab! Capital Management
I, LLC, entities and individuals affiliated with Draper Fisher Jurvetson, and to
other investors at a price of $2.076 per share, for an aggregate offering price
of $8,347,216.09.
9. On December 14, 1998, GoTo.com issued 1,830,443 shares of Series C
Preferred Stock to entities affiliated with Global Retail Partners, L.P. at a
per share price of $2.076, for an aggregate offering price of $3,799,999.67.
10. On December 20, 1998, GoTo.com issued 40,000 shares of Common Stock to
a consultant in exchange for services rendered worth $3,200.
11. On December 22, 1998, GoTo.com issued 9,087 shares of Series C
Preferred Stock to seven investors at a price of $2.076 per share, for an
aggregate offering price of $18,864.61.
12. On April 14, 1999, GoTo.com issued 3,628,447 shares of Series D
Preferred Stock to The Goldman Sachs Group, L.P. and other persons and entities
not previously stockholders of GoTo.com, as well as to idealab! Holdings,
L.L.C., entities affiliated with idealab! Capital Management I, LLC, entities
and individuals affiliated with Draper Fisher
II-2
<PAGE> 92
Jurvetson, entities affiliated with Moore Capital Management, Inc., entities
affiliated with Global Retail Partners, L.P., Kline Hawkes California SBIC,
L.P., entities affiliated with Integral Capital Partners, and to other investors
at a per share price of $6.89, for an aggregate offering price of $25,000,000.
13. Between September 15, 1998 and February 24, 1999, GoTo.com issued
warrants to purchase up to 104,971 shares of Common Stock at exercise prices
ranging from $0.77 to $5.00 per share.
14. Between July 1, 1997 and April 14, 1999, GoTo.com granted stock options
to purchase 6,501,136 shares of Common Stock at exercise prices ranging from
$0.15 to $6.20 per share to employees and consultants pursuant to its 1998 stock
option plan.
15. Between January 13, 1999 and April 14, 1999, an aggregate of 4,672,896
shares of Common Stock were issued upon exercise of options under GoTo.com's
1998 stock option plan.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales of Common Stock and Preferred Stock were made in reliance
upon the exemptions from registration set forth in Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D promulgated thereunder for
transactions not involving a public offering. Issuances of options and shares
upon exercise of options to GoTo.com's employees and consultants were made
pursuant to Rule 701 promulgated under the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of
GoTo.com to be in effect after the closing of the offering
made under this Registration Statement.
3.2 Amended and Restated Bylaws of GoTo.com to be in effect
after the closing of the offering made under this
Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between GoTo.com and
certain of its officers and each of its directors.
10.2 Form of Change of Control Severance Agreement between
GoTo.com and certain of its officers.
10.3 1998 Stock Plan and forms of option agreements thereunder.
10.4 1999 Employee Stock Purchase Plan and form of agreement
thereunder.
10.5 Series A Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.6 Amended and Restated Series B Preferred Stockholders' Rights
Agreement among GoTo.com and certain investors.
10.7 Series C Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.8 Series D Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
</TABLE>
II-3
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
10.9* Sublease Agreement dated February 1, 1999 between GoTo.com
and Bill Gross' idealab!.
10.10* Information Services Agreement dated April 30, 1998 between
GoTo.com and Inktomi Corporation.
10.11* Premier Search Services Agreement dated September 16, 1998
between GoTo.com and Microsoft Corporation.
10.12* Letter of Agreement dated April 1, 1999 between GoTo.com and
Pile, Inc.
23.1 Consent of Independent Accountants.
23.2* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see Page II-6).
</TABLE>
- -------------------------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act
II-4
<PAGE> 94
shall be deemed to be part of this Registration Statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Pasadena,
State of California, on the 16th day of April, 1999.
GOTO.COM, INC.
By: /s/ JEFFREY S. BREWER
-----------------------------------
Jeffrey S. Brewer
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Jeffrey S.
Brewer and Todd Tappin, each of them acting individually, as his or her
attorney-in-fact, each with full power of substitution, for him or her any and
all capacities, to sign any and all amendments (including, without limitation,
post-effective Amendments and any amendments or abbreviated registration
statements increasing the amount of securities for which registration is being
sought) to this Registration Statement, with all exhibits and any and all
documents required to be filed with respect thereto, with the Securities and
Exchange Commission or any regulatory authority, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
order to effectuate the same as fully to all intents and purposes as he or she
might or could do if personally present, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JEFFREY S. BREWER President, Chief April 16, 1999
- --------------------------------------------------- Executive Officer and
(Jeffrey S. Brewer) Director (Principal
Executive Officer)
/s/ TODD TAPPIN Chief Financial April 16, 1999
- --------------------------------------------------- Officer (Principal
(Todd Tappin) Financial Officer)
/s/ ROBERT M. KAVNER Chairman of the Board April 16, 1999
- ---------------------------------------------------
(Robert M. Kavner)
</TABLE>
II-6
<PAGE> 96
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM GROSS Director April 16, 1999
- ---------------------------------------------------
(William Gross)
/s/ ALAN COLNER Director April 16, 1999
- ---------------------------------------------------
(Alan Colner)
/s/ TIMOTHY DRAPER Director April 16, 1999
- ---------------------------------------------------
(Timothy Draper)
/s/ LINDA FAYNE LEVINSON Director April 16, 1999
- ---------------------------------------------------
(Linda Fayne Levinson)
/s/ WILLIAM ELKUS Director April 16, 1999
- ---------------------------------------------------
(William Elkus)
</TABLE>
II-7
<PAGE> 97
GOTO.COM, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FROM SEPTEMBER 15, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997 AND
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
---------- ----------
BALANCE AT CHARGED TO AMOUNT BALANCE AT
BEGINNING OF COSTS AND CHARGED TO END OF
PERIOD EXPENSES RESERVE PERIOD
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
December 31, 1997............ $-- $ -- $-- $ --
December 31, 1998............ $-- $86,000 $-- $86,000
</TABLE>
S-1
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ------- ----
<S> <C> <C>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of
GoTo.com to be in effect after the closing of the offering
made under this Registration Statement.
3.2 Amended and Restated Bylaws of GoTo.com to be in effect
after the closing of the offering made under this
Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between GoTo.com and
certain of its officers and each of its directors.
10.2 Form of Change of Control Severance Agreement between
GoTo.com and certain of its officers.
10.3 1998 Stock Plan and forms of option agreements thereunder.
10.4 1999 Employee Stock Purchase Plan and form of agreement
thereunder.
10.5 Series A Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.6 Amended and Restated Series B Preferred Stockholders' Rights
Agreement among GoTo.com and certain investors.
10.7 Series C Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.8 Series D Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.9* Sublease Agreement dated February 1, 1999 between GoTo.com
and Bill Gross' idealab!.
10.10* Information Services Agreement dated April 30, 1998 between
GoTo.com and Inktomi Corporation.
10.11* Premier Search Services Agreement dated September 16, 1998
between GoTo.com and Microsoft Corporation.
10.12* Letter of Agreement dated April 1, 1999 between GoTo.com and
Pile, Inc.
23.1 Consent of Independent Accountants.
23.2* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney. (see Page II-6).
27.1 Financial Data Schedules.
</TABLE>
- -------------------------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GOTO.COM, INC.
a Delaware corporation
GoTo.com, Inc. (the "CORPORATION"), a Corporation organized and existing
under the General Corporation Law of the State of Delaware (the "GENERAL
CORPORATION LAW"), hereby certifies as follows:
1. That the Corporation was originally incorporated on September 15,
1997, under the name Go2 Technologies, Inc., pursuant to the General Corporation
Law.
2. Pursuant to Sections 228, 242 and 245 of the General Corporation Law,
this Amended and Restated Certificate of Incorporation restates and integrates
and further amends the provisions of the Certificate of Incorporation of the
Corporation and has been duly adopted by resolutions adopted by the Board of
Directors of the Corporation and the holders of a majority of the Corporation's
outstanding capital stock.
3. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety as follows:
"ARTICLE I
The name of the Corporation is GoTo.com, Inc.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 15 East North Street, Dover, County of Kent, Delaware 19901. The
name of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
The Corporation is authorized to issue two classes of shares to be
designated, respectively, Common Stock ("COMMON STOCK") and Preferred Stock
("PREFERRED STOCK"). The total number of shares of Common Stock the Corporation
shall have authority to issue is 200,000,000 with a par value of $0.0001 per
share. The total number of shares of Preferred Stock the Corporation shall have
authority to issue is 10,000,000 with a par value of $0.0001 per share.
A. Common Stock. The holders of Common Stock shall be entitled to
vote on each matter on which the stockholders of the Corporation shall be
entitled to vote, and each holder of Common Stock shall be entitled to one vote
for each share of such stock held by such holder.
B. Preferred Stock.
The Board of Directors is authorized, subject to limitations prescribed
by law, to provide for the issuance of the shares of Preferred in series and, by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in such series,
and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) the number of shares constituting that series and the distinctive
designation of that series;
(b) the dividend rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) whether that series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
(d) whether that series shall have conversion privileges and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(e) whether or not the shares of that series shall be redeemable and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
-2-
<PAGE> 3
(f) whether that series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and amount of such
sinking fund; and
(g) the rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series.
ARTICLE V
To the fullest extent permitted by the General Corporation Law as the
same exists or as may hereafter be amended, a director of this Corporation shall
not be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
The Corporation may indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer, employee or agent of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer, employee or agent at the request of the
Corporation or any predecessor to the Corporation.
Neither any amendment nor repeal of this Article V, nor the adoption of
any provision of this Certificate inconsistent with this Article V, shall
eliminate or reduce the effect of this Article V, in respect of any matter
occurring, or any cause of action, suit, claim or proceeding accruing or arising
or that, but for this Article V, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
ARTICLE VI
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate, in the manner now or hereafter
prescribed by statute or this Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-3-
<PAGE> 4
ARTICLE VII
The management of the business and the conduct of the affairs of the
Corporation shall be vested in the Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed in the manner
designated in the Bylaws of the Corporation.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
Vacancies created by newly created directorships, created in accordance
with the Bylaws of the Corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
ARTICLE X
At any time following the closing of the first sale of Common Stock of
the Corporation pursuant to a registration statement declared effective by the
Securities and Exchange Corporation under the Securities Act of 1933, as
amended, stockholders of the Corporation may not take any action by written
consent in lieu of a meeting and any action contemplated by stockholders after
such time must be taken at a duly called annual or special meeting of
stockholders.
The number of directors which constitute the whole Board of Directors of
the Corporation shall be fixed exclusively by one or more resolution adopted
from time to time by the Board of Directors. The Board of Directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the date hereof, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term
-4-
<PAGE> 5
of three years. At the second annual meeting of stockholders following the date
hereof, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the date hereof, the term of office of the
Class III directors shall expire and Class III directors shall be elected for a
full term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
ARTICLE XI
This Corporation is to have perpetual existence."
* * *
-5-
<PAGE> 6
IN WITNESS WHEREOF, GoTo.com, Inc. has caused this Amended and Restated
Certificate of Incorporation to be executed by its President and attested by its
Secretary this __ day of ________, 1999.
GOTO.COM, INC.
a Delaware corporation
-------------------------------------
Jeffrey Brewer
President
Attest:
- ---------------------------------
Todd Tappin
Secretary
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
GOTO.COM, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - CORPORATE OFFICES...........................................................1
1.1 REGISTERED OFFICE.....................................................1
1.2 OTHER OFFICES.........................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS...................................................1
2.1 PLACE OF MEETINGS.....................................................1
2.2 ANNUAL MEETING........................................................1
2.3 SPECIAL MEETING.......................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS......................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..........................2
2.6 QUORUM................................................................2
2.7 ADJOURNED MEETING; NOTICE.............................................2
2.8 VOTING................................................................3
2.9 WAIVER OF NOTICE......................................................3
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING............................3
2.11 PROXIES...............................................................4
2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE.................................4
2.13 NOMINATIONS AND PROPOSALS.............................................4
2.14 ORGANIZATION..........................................................5
ARTICLE III - DIRECTORS.................................................................6
3.1 POWERS................................................................6
3.2 NUMBER OF DIRECTORS...................................................6
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS ..............6
3.4 RESIGNATION AND VACANCIES.............................................7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..............................8
3.6 FIRST MEETINGS........................................................8
3.7 REGULAR MEETINGS......................................................8
3.8 SPECIAL MEETINGS; NOTICE..............................................8
3.9 QUORUM................................................................9
3.10 WAIVER OF NOTICE......................................................9
3.11 ADJOURNED MEETING; NOTICE.............................................9
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.....................9
3.13 FEES AND COMPENSATION OF DIRECTORS...................................10
3.14 APPROVAL OF LOANS TO OFFICERS........................................10
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.15 REMOVAL OF DIRECTORS.................................................10
ARTICLE IV - COMMITTEES................................................................10
4.1 COMMITTEES OF DIRECTORS..............................................10
4.2 COMMITTEE MINUTES....................................................11
4.3 MEETINGS AND ACTION OF COMMITTEES....................................11
ARTICLE V - OFFICERS...................................................................12
5.1 OFFICERS.............................................................12
5.2 ELECTION OF OFFICERS.................................................12
5.3 SUBORDINATE OFFICERS.................................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS..................................12
5.5 VACANCIES IN OFFICES.................................................13
5.6 CHAIRMAN OF THE BOARD................................................13
5.7 PRESIDENT............................................................13
5.8 VICE PRESIDENT.......................................................13
5.9 SECRETARY............................................................13
5.10 TREASURER............................................................14
5.11 ASSISTANT SECRETARY..................................................14
5.12 ASSISTANT TREASURER..................................................14
5.13 AUTHORITY AND DUTIES OF OFFICERS.....................................15
ARTICLE VI - INDEMNITY.................................................................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS............................15
6.2 INDEMNIFICATION OF OTHERS............................................15
6.3 INSURANCE............................................................16
ARTICLE VII - RECORDS AND REPORTS......................................................16
7.1 MAINTENANCE AND INSPECTION OF RECORDS................................16
7.2 INSPECTION BY DIRECTORS..............................................17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.....................................17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.......................17
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VIII - GENERAL MATTERS.........................................................17
8.1 CHECKS...............................................................17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.....................18
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES...............................18
8.4 SPECIAL DESIGNATION ON CERTIFICATES..................................18
8.5 LOST CERTIFICATES....................................................19
8.6 CONSTRUCTION; DEFINITIONS............................................19
8.7 DIVIDENDS............................................................19
8.8 FISCAL YEAR..........................................................19
8.9 SEAL.................................................................20
8.10 TRANSFER OF STOCK....................................................20
8.11 STOCK TRANSFER AGREEMENTS............................................20
8.12 REGISTERED STOCKHOLDERS..............................................20
ARTICLE IX - AMENDMENTS................................................................20
ARTICLE X - DISSOLUTION................................................................21
ARTICLE XI - CUSTODIAN.................................................................22
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES..........................22
11.2 DUTIES OF CUSTODIAN..................................................22
</TABLE>
-iii-
<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
GOTO.COM, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of Dover,
County of Kent, State of Delaware. The name of the registered agent of the
corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
<PAGE> 6
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time only by
the board of directors, or by the chairman of the board, or by the president.
Only such business shall be considered at a special meeting of stockholders as
shall have been stated in the notice for such meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
-2-
<PAGE> 7
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.10 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
-3-
<PAGE> 8
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.11 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
dissent to corporate action in writing without a meeting may authorize another
person or persons to act for him by a written proxy, signed by the stockholder
and filed with the secretary of the corporation, but no such proxy shall be
voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.13 NOMINATIONS AND PROPOSALS
Nominations of persons for election to the board of directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at any meeting of stockholders only (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the board of
directors or (c) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in these bylaws, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 2.13 and, for purposes of this clause (c), only at an
annual meeting of stockholders or, solely for nominations of persons for
election to the board of directors of the corporation, at any meeting at which
directors are to be elected.
-4-
<PAGE> 9
For nominations or other business to be properly brought before a
stockholders meeting by a stockholder pursuant to clause (c) of the preceding
sentence, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the secretary at the principal executive offices of the
corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the meeting; provided,
however, that in the event that public announcement of the date of the meeting
is given to stockholders less than 95 days prior to the date of the meeting,
notice by the stockholder to be timely must be so delivered not later than the
close of business on the seventh (7th) day following the day on which public
announcement of the date of the meeting is first made by the corporation. For
purposes of this Section 2.13, "public announcement" shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission. In no event shall the
public announcement of an adjournment of a stockholders meeting commence a new
time period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (or any successor thereto) and Rule 14a-11 thereunder
(or any successor thereto) (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the corporation's books, and of such beneficial owner, and
(ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
Notwithstanding any provision herein to the contrary, no business shall be
conducted at a stockholders meeting except in accordance with the procedures set
forth in this Section 2.13.
2.14 ORGANIZATION
Meetings of stockholders shall be presided over by the chairman of the
board, by the vice chairman of the board, by the chairman of the executive
committee, by the president, by a vice president, or by a chairman designated by
any of the foregoing. The secretary or in his or her absence an assistant
secretary or in the absence of the secretary and all assistant secretaries a
person whom the chairman of the meeting shall appoint shall act as secretary of
the meeting and keep a record of the proceedings thereof.
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The board of directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the board of directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting and matters which are to be voted
on by ballot. Unless and to the extent determined by the board of directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER OF DIRECTORS
The authorized number of directors shall be seven (7). This number may
be changed by a duly adopted amendment to the certificate of incorporation or by
an amendment to this bylaw adopted by the vote of the holders of a majority of
the stock issued and outstanding and entitled to vote or by resolution of a
majority of the board of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in the certificate of incorporation and Section 3.4
of these bylaws, directors shall be elected at each annual meeting of
stockholders to hold office until the next
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annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to
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fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office as aforesaid, which election
shall be governed by the provisions of Section 211 of the General Corporation
Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by
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telegram, it shall be delivered personally or by telephone or to the telegraph
company at least forty-eight (48) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a meeting
if all members of the board or committee, as the case may
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be, consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
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present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), and Section 3.12 (action without a meeting), with such changes in
the context of those bylaws as are necessary to substitute the committee and its
members for the board of directors and its members; provided, however, that the
time of regular meetings of committees may also be called by resolution of the
board of directors and that notice of special meetings of committees shall also
be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee
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meetings, the number of shares present or represented at stockholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 TREASURER
The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
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The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
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venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during
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ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
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From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
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If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such
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reserve. Such purposes shall include but not be limited to equalizing dividends,
repairing or maintaining any property of the corporation, and meeting
contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
This corporation may have a corporate seal, which may be adopted or
altered at the pleasure of the Board of Directors, and may use the same by
causing it or a facsimile thereof, to be impressed or affixed or in any other
manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
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The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws. Notwithstanding the
foregoing, amendment or deletion of all or any portion or Article II hereof or
this Article IX by the stockholders of the corporation shall require the
affirmative vote of 66 2/3% of the outstanding shares entitled to vote thereon.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall have
attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
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ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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Exhibit 10.1
GOTO.COM, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
__________, 1999 by and between GoTo.com, Inc., a Delaware corporation (the
"Company"), and the person whose signature appears on the signature page
attached hereto ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
the advancement of expenses to, Indemnitee to the maximum extent permitted by
law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, the Company and Indemnitee desire to continue to have in place
the additional protection provided by an indemnification agreement and to
provide indemnification and advancement of expenses to the Indemnitee to the
maximum extent permitted by Delaware law;
WHEREAS, the Company and Indemnitee desire to amend and restate any
prior indemnification agreement between them, if any, in its entirety as set
forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Certain Definitions.
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such
<PAGE> 2
period constitute the Board of Directors of the Company and any new director
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
GoTo.com, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which GoTo.com, Inc. (or
any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Covered Event" shall mean any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
(e) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such
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<PAGE> 3
settlement is approved in advance by the Company, which approval shall not be
unreasonably withheld), actually and reasonably incurred, of any Claim and any
federal, state, local or foreign taxes imposed on the Indemnitee as a result of
the actual or deemed receipt of any payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee
pursuant to Section 3 of Expenses in advance of the settlement of or final
judgement in any action, suit, proceeding or alternative dispute resolution
mechanism, hearing, inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm
of attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless
otherwise indicated.
(k) "Voting Securities" shall mean any securities of the Company
that vote generally in the election of directors.
2. Indemnification.
(a) Indemnification of Expenses. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a Covered Event), including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses.
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<PAGE> 4
(b) Review of Indemnification Obligations. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid in indemnifying Indemnitee; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee is entitled to
be indemnified hereunder under applicable law, any determination made by any
Reviewing Party that Indemnitee is not entitled to be indemnified hereunder
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expenses theretofore paid in indemnifying
Indemnitee until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expenses shall be
unsecured and no interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding
Effect. If any Reviewing Party determines that Indemnitee substantively is not
entitled to be indemnified hereunder in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by such
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and, subject to the provisions of Section 15, the Company hereby
consents to service of process and to appear in any such proceeding. Absent such
litigation, any determination by any Reviewing Party shall be conclusive and
binding on the Company and Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there
has not been a Change in Control, any Reviewing Party shall be selected by the
Board of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnification of Expenses under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, or under any other applicable law, if
desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall not be required to pay Expenses of more than one Independent Legal
Counsel in connection with all matters concerning a single Indemnitee, and such
Independent Legal Counsel shall be the Independent Legal Counsel for any or all
other Indemnitees unless (i) the Company otherwise determines or (ii) any
Indemnitee shall provide a
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<PAGE> 5
written statement setting forth in detail a reasonable objection to such
Independent Legal Counsel representing other Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
(a) Obligation to Make Expense Advances. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts if
it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified therefor by the Company, the Company shall make Expense Advances to
Indemnitee.
(b) Form of Undertaking. Any written undertaking by the
Indemnitee to repay any Expense Advances hereunder shall be unsecured and no
interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties
agree that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
(a) Timing of Payments. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee pursuant
to this Agreement shall be made to the fullest extent permitted by law as soon
as practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than forty-five (45) business days after such
written demand by Indemnitee is presented to the Company, except in the case of
Expense Advances, which shall be made no later than twenty (20) business days
after such written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
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<PAGE> 6
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement or applicable law, shall be a defense
to Indemnitee's claim or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently employed by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by
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<PAGE> 7
the other provisions of this Agreement, the Company's Certificate of
Incorporation, the Company's Bylaws or by statute. In the event of any change
after the date of this Agreement in any applicable law, statute or rule which
expands the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits afforded by such change. In the event of any change in any applicable
law, statute or rule which narrows the right of a Delaware corporation to
indemnify a member of its board of directors or an officer, employee, agent or
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder except as set forth
in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any rights
to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware,
or otherwise. The indemnification and the payment of Expense Advances provided
under this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgement. Both the Company and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
9. Liability Insurance. To the extent the Company maintains
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as to
provide Indemnitee the same rights and benefits as are provided to the most
favorably insured of the Company's directors, if Indemnitee is a director; or of
the Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's
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<PAGE> 8
key employees, agents or fiduciaries, if Indemnitee is not an officer or
director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated pursuant to the terms of this
Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law; provided, however, that notwithstanding any limitation set forth in this
Section 10(a) regarding the Company's obligation to provide indemnification,
Indemnitee shall be entitled under Section 3 to receive Expense Advances
hereunder with respect to any such Claim unless and until a court having
jurisdiction over the Claim shall have made a final judicial determination (as
to which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee has engaged in acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or applicable
law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute; provided,
however, that notwithstanding any limitation set forth in this Section 10(d)
regarding the Company's obligation to provide indemnification, Indemnitee shall
be entitled under Section 3 to receive Expense Advances hereunder with respect
to any such Claim unless and until a court having jurisdiction over the Claim
shall have made a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that Indemnitee has violated said
statute.
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<PAGE> 9
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee under
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including without limitation attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee in defense of such action
(including without limitation costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action a court having jurisdiction over such action makes a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or lapsed) that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous; provided, however, that
until such final judicial determination is made, Indemnitee shall be entitled
under Section 3 to receive payment of Expense Advances hereunder with respect to
such action.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
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<PAGE> 10
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to principles of conflicts of laws.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
This Agreement shall supersede any prior Indemnification Agreement between the
parties hereto, and all such prior agreements shall hereafter be void and of no
force and effect with respect to matters occurring after the date hereof.
21. No Construction as Employment Agreement. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries or affiliated entities.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
GOTO.COM, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address: GoTo.com, Inc.
140 West Union Street
Pasadena, California 91103
AGREED TO AND ACCEPTED by Indemnitee
By:_____________________________
Print Name:_____________________
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<PAGE> 1
Exhibit 10.2
GOTO.COM, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made and
entered into effective as of ___________, 1999 (the "Effective Date"), by and
between _____________________ (the "Employee") and GoTo.com, Inc., a Delaware
corporation (the "Company"). Certain capitalized terms used in this Agreement
are defined in Section 1 below.
R E C I T A L S
A. The Company from time to time may be presented with the
possibility of engaging in a Change of Control transaction. The Board of
Directors of the Company (the "Board") recognizes that such consideration can be
a distraction to the Employee and can cause the Employee to consider alternative
employment opportunities.
B. The Board believes that it is in the best interests of the
Company and its shareholders to provide the Employee with an incentive to
continue his employment and to maximize the value of the Company upon a Change
of Control for the benefit of its shareholders.
C. In order to provide the Employee with enhanced financial security
and sufficient encouragement to remain with the Company notwithstanding the
possibility of a Change of Control, the Board believes that it is imperative to
provide the Employee with certain severance benefits upon the Employee's
termination of employment (in certain circumstances) following a Change of
Control.
AGREEMENT
In consideration of the mutual covenants herein contained and the
continued employment of Employee by the Company, the parties agree as follows:
1. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an employee
which is intended to result in substantial personal enrichment of the Employee,
(ii) Employee's conviction of a felony which the Board reasonably believes has
had or will have a material detrimental effect on the Company's reputation or
business, (iii) a willful act by the Employee which constitutes misconduct and
is injurious to the
<PAGE> 2
Company, and (iv) continued willful violations by the Employee of the Employee's
obligations to the Company after there has been delivered to the Employee a
written demand for performance from the Company which describes the basis for
the Company's belief that the Employee has not substantially performed his
duties.
(b) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) the approval by shareholders of the Company of a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
(ii) the approval by the shareholders of the Company of
a plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or
(iii) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities.
(c) Compensation Continuation Period. "Compensation Continuation
Period" shall mean the period of time commencing with termination of the
Employee's employment as a result of Involuntary Termination at anytime within
twelve (12) months after a Change of Control and ending with the expiration of
six (6) months following the date of the Employee's termination.
(d) Involuntary Termination. "Involuntary Termination" shall
mean termination of Employee's employment with the Company immediately following
any of the following: (i) a reduction by the Company of the Employee's base
salary as in effect immediately prior to such reduction; (ii) a material
reduction by the Company in the kind or level of employee benefits to which the
Employee is entitled immediately prior to such reduction with the result that
the Employee's overall benefits package is significantly reduced; (iii) without
the Employee's express written consent, the relocation of the Employee to a
facility or a location more than fifty (50) miles from his current location; or
(iv) any purported termination of the Employee by the Company which is not
effected for Cause.
(e) Termination Date. "Termination Date" shall mean the
effective date of any notice of termination delivered by one party to the other
hereunder.
2. Term of Agreement. This Agreement shall terminate upon the date
that all obligations of the parties hereto under this Agreement have been
satisfied.
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<PAGE> 3
3. At-Will Employment. The Company and the Employee acknowledge that
the Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
established under the Company's then existing employee benefit plans or policies
at the time of termination.
4. Severance Benefits.
(a) Termination Following A Change of Control.
(i) Involuntary Termination. If the Employee's
employment with the Company terminates as a result of an Involuntary Termination
at any time within twelve (12) months after a Change of Control, the Employee
shall be entitled to receive continuing payments of severance pay at a rate
equal to the sum of: six (6) months of the Employee's base salary (as in effect
immediately prior to the Change of Control). Such severance payments shall be
paid monthly in accordance with the Company's normal payroll practices during
the Compensation Continuation Period. In addition, if Employee is eligible for
and timely elects group health continuation coverage pursuant to the
Consolidated Omnibus Reconciliation Act of 1985, as amended ("COBRA"), the
Company will reimburse Employee for his COBRA premiums until the earlier of (i)
six (6) months from the Employee's Termination Date; or (ii) the date Employee
is no longer eligible to receive continuation coverage pursuant to COBRA.
Employee shall thereafter be responsible for the payment of COBRA coverage at
102% of the actual premium cost for the remaining COBRA period.
(ii) Other Termination. If the Employee's employment with
the Company terminates other than as a result of an Involuntary Termination at
any time within twelve (12) months after a Change of Control, then the Employee
shall not be entitled to receive severance or other benefits hereunder, but may
be eligible for those benefits (if any) as may then be established under the
Company's then existing severance and benefits plans and policies at the
Termination Date.
(b) Termination Apart from a Change of Control. If the
Employee's employment with the Company terminates for any or no reason other
than within the twelve (12) months following a Change of Control, then the
Employee shall not be entitled to receive severance or other benefits hereunder,
but may be eligible for those benefits (if any) as may then be established under
the Company's then existing severance and benefits plans and policies at the
time of such termination.
(c) Accrued Wages and Vacation; Expenses. Without regard to the
reason for, or the timing of, Employee's termination of employment: (i) the
Company shall pay the Employee any unpaid base salary due for periods prior to
the Termination Date; (ii) the Company shall pay the Employee all of the
Employee's accrued and unused vacation through the Termination Date; and (iii)
following submission of proper expense reports by the Employee, the Company
shall reimburse the Employee for all expenses reasonably and necessarily
incurred by the Employee in connection with the business of the
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<PAGE> 4
Company prior to the Termination Date. These payments shall be made promptly
upon termination and within the period of time mandated by law.
5. Option Acceleration. If the Employee's employment with the
Company terminates as a result of an Involuntary Termination at any time within
twelve (12) months after a Change of Control, the vesting and exercisability of
one hundred percent (100%) of any unvested options granted to the Employee by
the Company shall become vested and exercisable as of the date of the Employee's
Involuntary Termination.
6. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the Company's obligations under this Agreement and
agree to perform the Company's obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) Employee's Successors. Without the written consent of the
Company, Employee shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notices.
(a) General. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or certified
mail, return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for
Cause or by the Employee as a result of a voluntary resignation or an
Involuntary Termination shall be communicated by a notice of termination to the
other party hereto given in accordance with this Section. Such notice shall
indicate the specific termination provision in this Agreement relied upon, shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify the
Termination Date (which shall be not more than 30 days after the giving of such
notice). The failure by the Employee to include in the notice any fact or
circumstance which contributes to a showing of Involuntary Termination shall not
waive any right of
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<PAGE> 5
the Employee hereunder or preclude the Employee from asserting such fact or
circumstance in enforcing his rights hereunder.
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<PAGE> 6
8. Arbitration.
(a) Any dispute or controversy arising out of, relating to, or
in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be settled by
binding arbitration to be held in Pasadena, California, in accordance with the
National Rules for the Resolution of Employment Disputes then in effect of the
American Arbitration Association (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of the
arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits
of any dispute or claim, without reference to conflicts of law rules. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Employee hereby consents to
the personal jurisdiction of the state and federal courts located in California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.
(c) Employee understands that nothing in this Section modifies
Employee's at-will employment status. Either Employee or the Company can
terminate the employment relationship at any time, with or without cause.
(d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH
DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING
OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A
JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS
OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE
FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR
PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL
STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR
CODE SECTION 201, et seq;
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<PAGE> 7
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS
AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
9. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source.
(b) Waiver. No provision of this Agreement may be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Integration. This Agreement and the stock option agreements
representing the Options represent the entire agreement and understanding
between the parties as to the subject matter herein and supersede all prior or
contemporaneous agreements, whether written or oral.
(d) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the internal substantive
laws, but not the conflicts of law rules, of the State of California.
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) Employment Taxes. All payments made pursuant to this
Agreement shall be subject to withholding of applicable income and employment
taxes.
(g) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
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<PAGE> 8
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
COMPANY: GOTO.COM, INC.
By:
--------------------------------------
Title:
-----------------------------------
EMPLOYEE:
-----------------------------------------
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<PAGE> 1
Exhibit 10.3
GOTO.COM, INC.
1998 STOCK PLAN
(AS AMENDED AND RESTATED April 6, 1999)
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are:
o to attract and retain the best available personnel for positions of
substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means GoTo.com, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services to such entity.
<PAGE> 2
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
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<PAGE> 3
(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
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(ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 8,500,000 Shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2000 equal to the lesser of
(i) 7,500,000 Shares, (ii) 4% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered by
different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
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<PAGE> 5
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating
to the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
(x) to modify or amend each Option or Stock Purchase Right (subject
to Section 15(c) of the Plan), including the discretionary authority to extend
the post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that
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<PAGE> 6
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000 Shares
which shall not count against the limit set forth in subsection (i) above.
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<PAGE> 7
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant.
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
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<PAGE> 8
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.
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<PAGE> 9
An Option shall be deemed exercised when the Company receives: (i) written
or electronic notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event
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<PAGE> 10
later than the expiration of the term of such Option as set forth in the Notice
of Grant), by the Optionee's estate or by a person who acquires the right to
exercise the Option by bequest or inheritance, but only to the extent that the
Option is vested on the date of death. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, at the time of death, the Optionee is
not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately revert to the Plan. The Option may be
exercised by the executor or administrator of the Optionee's estate or, if none,
by the person(s) entitled to exercise the Option under the Optionee's will or
the laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
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<PAGE> 11
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the
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<PAGE> 12
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder approval
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
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<PAGE> 13
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE> 14
GOTO.COM, INC.
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
[20% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST ON THE VESTING COMMENCEMENT
DATE, AND 20% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST EACH ANNIVERSARY OF
THE VESTING COMMENCEMENT DATE, SUBJECT TO OPTIONEE'S CONTINUING TO BE A SERVICE
PROVIDER ON SUCH DATES SO THAT THE SHARES SUBJECT TO THE OPTION SHALL BE 100%
VESTED FOUR (4) YEARS FROM THE VESTING
<PAGE> 15
COMMENCEMENT DATE].
Termination Period:
This Option may be exercised for three months after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for one year after Optionee ceases to be a Service Provider. In
no event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1 GRANT OF OPTION. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2 EXERCISE OF OPTION.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Secretary of the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
<PAGE> 16
3 METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares;
4 NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5 TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6 TAX CONSEQUENCES. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may
-3-
<PAGE> 17
refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7 ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely
-4-
<PAGE> 18
to the Optionee's interest except by means of a writing signed by the Company
and Optionee. This agreement is governed by the internal substantive laws, but
not the choice of law rules, of California.
8 NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: GOTO.COM, INC.
- ----------------------------------- ------------------------------------
Signature By
- ----------------------------------- ------------------------------------
Print Name Title
- -----------------------------------
Residence Address
- -----------------------------------
-5-
<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
-----------------------------------------
Spouse of Optionee
-6-
<PAGE> 20
EXHIBIT A
GOTO.COM, INC.
1998 STOCK PLAN
EXERCISE NOTICE
GoTo.com, Inc.
{Address}
Attention: Secretary
1 EXERCISE OF OPTION. Effective as of today, ________________, _____,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of GoTo.com, Inc. (the "Company") under and
pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option Agreement
dated , _____ (the "Option Agreement"). The purchase price for the Shares shall
be $________, as required by the Option Agreement.
2 DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3 REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4 RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5 TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE> 21
6 ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: GOTO.COM, INC.
- ---------------------------------- ------------------------------------
Signature By
- ---------------------------------- ------------------------------------
Print Name Its
Address: Address:
GoTo,com, Inc.
- ---------------------------------- {Address}
- ----------------------------------
------------------------------------
Date Received
-2-
<PAGE> 22
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, _____ between GoTo.com,
Inc. a Delaware corporation ("Pledgee"), and _________________________
("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1998 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1 CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2 PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a Payment of Indebtedness. Pledgor will pay the principal sum
of the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
b Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE> 23
c Margin Regulations. In the event that Pledgee's Common Stock is
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3 VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4 STOCK ADJUSTMENTS. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5 OPTIONS AND RIGHTS. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6 DEFAULT. Pledgor shall be deemed to be in default of the Note and
of this Security Agreement in the event:
a Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7 RELEASE OF COLLATERAL. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder here-
<PAGE> 24
under upon payments of the principal of the Note. The number of the pledged
Shares which shall be released shall be that number of full Shares which bears
the same proportion to the initial number of Shares pledged hereunder as the
payment of principal bears to the initial full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10 Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11 Pledgeholder Liability. In the absence of willful or gross negligence,
Pledgeholder shall not be liable to any party for any of his acts, or omissions
to act, as Pledgeholder.
12 Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13 Successors or Assigns. Pledgor and Pledgee agree that all of the terms
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14 Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR"
--------------------------------------------
Signature
--------------------------------------------
Print Name
Address:
--------------------------------------------
--------------------------------------------
"PLEDGEE" GOTO.COM, INC.,
a Delaware corporation
--------------------------------------------
Signature
--------------------------------------------
Print Name
--------------------------------------------
Title
"PLEDGEHOLDER"
--------------------------------------------
Secretary of
GoTo.com, Inc.
-4-
<PAGE> 26
EXHIBIT C
NOTE
$______________
______________, _____
FOR VALUE RECEIVED, _______________ promises to pay to GoTo.com, Inc. a
Delaware corporation (the "Company"), or order, the principal sum of
_______________________ ($_____________), together with interest on the unpaid
principal hereof from the date hereof at the rate of _______________ percent
(____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, _____.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
------------------------------------
------------------------------------
<PAGE> 27
1998 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1998 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: GOTO.COM, INC.
- --------------------------- ------------------------------------
Signature By
- --------------------------- ------------------------------------
Print Name Title
<PAGE> 28
EXHIBIT A-1
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is
an Service Provider, and the Purchaser's continued participation is considered
by the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1 Sale of Stock. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2 Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3 Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's
<PAGE> 29
indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by
a combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4 Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares shall
be released from the Company's Repurchase Option [one year] after the Date of
Grant and __________________ percent (______%) of the Shares [at the end of each
month thereafter], provided that the Purchaser does not cease to be a Service
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5 Restriction on Transfer. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6 Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the
-2-
<PAGE> 30
"Escrow Holder") the share certificates representing the Unreleased Shares,
together with the stock assignment duly endorsed in blank, attached hereto as
Exhibit A-2. The Unreleased Shares and stock assignment shall be held by the
Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and
Purchaser attached hereto as Exhibit A-3, until such time as the Company's
Repurchase Option expires. As a further condition to the Company's obligations
under this Agreement, the Company may require the spouse of Purchaser, if any,
to execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7 Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
-3-
<PAGE> 31
8 Adjustment for Stock Split. All references to the number of Shares and
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9 Tax Consequences. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of the transactions contemplated by this Agreement.
The Purchaser understands that Section 83 of the Internal Revenue Code of 1986,
as amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the Shares as of the
date any restrictions on the Shares lapse. In this context, "restriction"
includes the right of the Company to buy back the Shares pursuant to the
Repurchase Option. The Purchaser understands that the Purchaser may elect to be
taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the IRS within 30 days from the date of purchase. The form for making this
election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10 General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
-4-
<PAGE> 32
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED:
---------------
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<PAGE> 33
PURCHASER: GOTO.COM, INC.
- ------------------------------ ------------------------------------
Signature By
- ------------------------------ ------------------------------------
Print Name Title
-6-
<PAGE> 34
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto ______________________________________________________
(__________) shares of the Common Stock of GoTo.com, Inc. standing in my name of
the books of said corporation represented by Certificate No. _____ herewith and
do hereby irrevocably constitute and appoint ______________________ to transfer
the said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, _____.
Dated: _______________, _____
Signature:
-------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 35
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
_______, ____
Corporate Secretary
GoTo.com, Inc.
{Address}
Dear _________________:
As Escrow Agent for both GoTo.com, Inc., a Delaware corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1 In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2 At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3 Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE> 36
4 Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5 If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6 Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7 You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8 You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9 You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10 You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11 You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
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<PAGE> 37
12 Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13 If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14 It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15 Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: GoTo.com, Inc.
{Address}
PURCHASER:
------------------------------
------------------------------
------------------------------
ESCROW AGENT: Corporate Secretary
GoTo.com, Inc.
{Address}
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
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<PAGE> 38
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
GOTO.COM, INC.
---------------------------------------
By
---------------------------------------
Title
PURCHASER:
---------------------------------------
Signature
---------------------------------------
Print Name
ESCROW AGENT:
- -------------------------------------
Corporate Secretary
-4-
<PAGE> 39
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of GoTo.com, Inc., as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, _____
---------------------------------------
Signature of Spouse
<PAGE> 40
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the "Shares") of the Common Stock of GoTo.com, Inc. (the
"Company").
3. The date on which the property was transferred is: ____________, ____.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is: $_____________.
6. The amount (if any) paid for such property is:
$___________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________, ____ ________________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________, ____ ________________________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.4
GOTO.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean GoTo.com, Inc., a Delaware corporation, and
any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of such determination, as reported
in The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of such determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board, or;
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Period" shall mean a period of approximately six (6)
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after March 1 and terminating on the
last Trading Day in the period ending the following August 31, or commencing
on the first Trading Day on or after September 1 and terminating on the last
Trading Day in the period ending the following April 30; provided, however, that
the first Offering Period under the Plan shall commence with the first Trading
Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before February 28, 2000. The duration of Offering Periods may
be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
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<PAGE> 3
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on the first Trading Day on or
after March 1 and September 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 20 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before February 28, 2000. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such
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<PAGE> 4
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of
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<PAGE> 5
the Company's Common Stock determined by dividing such Employee's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during each
Offering Period more than 25,000 shares (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, the shares purchased upon exercise of his or her
option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll
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<PAGE> 6
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 2,000,000 shares, plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2000 equal to the lesser of (i)
1,000,000 shares, (ii) 3% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. If, on a given Exercise Date, the number
of shares with respect to which options are to be exercised exceeds the number
of shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan
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<PAGE> 7
in the event of such participant's death prior to exercise of the option. If a
participant is married and the designated beneficiary is not the spouse, spousal
consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the
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<PAGE> 8
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as provided
in Section 19 and Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
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<PAGE> 9
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
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<PAGE> 10
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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<PAGE> 11
EXHIBIT A
GOTO.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:_______________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
GoTo.com, Inc. 1999 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee
Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
_______________________________ .
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I hereby agree to notify the
Company in writing within 30 days after the date of any
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<PAGE> 12
disposition of shares and I will make adequate provision for Federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
holding period, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent
of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase
price which I paid for the shares, or (2) 15% of the fair market value of
the shares on the first day of the Offering Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital
gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
--------------------------------------------------
(First) (Middle) (Last)
------------------------- --------------------------------------------
Relationship
--------------------------------------------
(Address)
Employee's Social
Security Number:
--------------------------------------------
Employee's Address:
--------------------------------------------
--------------------------------------------
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<PAGE> 13
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------- ------------------------------------------
Signature of Employee
------------------------------------------
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE> 14
EXHIBIT B
GOTO.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the GoTo.com, Inc.
1999 Employee Stock Purchase Plan which began on ___________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
--------------------------------------
--------------------------------------
--------------------------------------
Signature:
--------------------------------------
Date:
--------------------------------
<PAGE> 1
EXHIBIT 10.5
SERIES A PREFERRED
STOCKHOLDERS' RIGHTS AGREEMENT
This Series A Preferred Stockholders' Rights Agreement (this
"AGREEMENT") is made as of __________, 1998 by and between Go2 Technologies,
Inc., a Delaware corporation (the "COMPANY") and the entities listed on Exhibit
A hereto (each an "INVESTOR" and together, the "INVESTORS").
RECITALS
A. The Investors and the Company are parties to that certain Series A
Preferred Stock Purchase Agreement, of even date herewith (the "SERIES A
PURCHASE AGREEMENT"), which provides for the sale of up to five hundred thousand
(500,000) shares of the Series A Preferred Stock.
B. The execution of this Agreement is a condition to the closing of the
transactions contemplated in the Series A Purchase Agreement.
C. In connection with the above, the Company and the Investors desire
to provide for certain rights and obligations of the Investors.
In consideration of the mutual promises and covenants hereinafter set
forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission or
any successor agency.
"COMMON STOCK" means the Common Stock of the Company.
"FAMILY MEMBER" has the meaning set forth for it in Section 4.
"HOLDER" means any holder of outstanding Registrable
Securities (or Series A Preferred Stock convertible into Registrable Securities,
as the case may be) which have not been sold to the public.
"PARTIES" means the parties that are signatories of this
Agreement; "PARTY" shall refer to any one of the Parties.
"QUALIFIED PUBLIC OFFERING" has the meaning set forth for it
in Section 5(a).
"RESTRICTED SECURITIES" means the securities of the Company
described in Section 3 hereof.
<PAGE> 2
"REGISTRABLE SECURITIES" means (i) shares of the Common Stock
issued or issuable upon the conversion of the Series A Preferred Stock; and (ii)
any other shares of the Company's Common Stock issued as (or issuable upon
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to or in exchange for or
replacement of the Series A Preferred Stock.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" means all reasonable out-of-pocket
expenses incurred by the Company in complying with Sections 5 and 8 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and accounting fees of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock
of the Company.
2. Restrictions on Transferability. The Restricted Securities shall not
be transferable except upon the conditions specified in this Agreement
(including, without limitation, the provisions of Sections 4 and 18), which
conditions are intended, among other things, to ensure compliance with the
provisions of the Securities Act and other provisions. Each holder of Restricted
Securities will cause any proposed transferee of the Restricted Securities held
by such holder to agree in writing to take and hold such Restricted Securities
in accordance with the restrictions, obligations and conditions specified in
this Agreement (including, without limitation, the provisions of Sections 2, 3,
4, 11, 12 and 17) and to be bound by this Agreement in the same manner as the
transferring holder.
3. Restrictive Legend. Each certificate representing (i) shares of
Series A Preferred Stock, (ii) shares of Common Stock issued upon conversion of
the Series A Preferred Stock, and (iii) any other securities issued in respect
of the Series A Preferred Stock and Common Stock issued upon conversion of the
Series A Preferred Stock (any such securities listed in the preceding
subsections (i), (ii) or (iii), "RESTRICTED SECURITIES), shall (unless otherwise
permitted by the provisions of Section 4 below) be stamped or otherwise
imprinted with a legend in the following form (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
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<PAGE> 3
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SHARES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT. COPIES OF THE
AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
4. Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall, if the Company so
requests, be accompanied (except in transactions in compliance with Rule 144) by
an unqualified written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, provided, however, that no opinion need
be obtained with respect to a transfer to (A) a partner, active or retired, of a
holder of Restricted Securities, (B) the estate of any such partner, (C) an
"affiliate" of a holder of Restricted Securities as that term is defined in Rule
405 promulgated by the Commission under the Securities Act (an"AFFILIATE"), or
(D) to the spouse, children, grandchildren or spouse of such children or
grandchildren of any holder or to trusts for the benefit of any Holder or such
persons where the holder is a natural person (each person or entity in this
subsection (D), a "FAMILY MEMBER"), if the transferee agrees to be subject to
the terms hereof. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth in Section 3 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for the Company such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
5. Company Registration.
(a) Notice of Registration. After the first firmly
underwritten public offering which is (i) pursuant to an effective registration
statement under the Securities Act covering the offer and sale of Common Stock
and (ii) the anticipated proceeds from such offering equals or exceeds
$5,000,000, such offering (a "QUALIFIED PUBLIC OFFERING") if the Company shall
determine to register any of its securities, either for its own account or the
account of a security holder, other than (A) a registration relating to employee
benefit plans or, (B) a registration relating to a Commission Rule 145 or
similar transaction, the Company will:
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<PAGE> 4
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from the Company, by any Holder, except as set forth in Section 5(b) below.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5(a)(i). In such event the right of any Holder to
registration pursuant to Section 5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 5, if the managing
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter may limit to whatever extent necessary (including the complete
exclusion of all Registrable Securities) the number of Registrable Securities to
be included in the registration and underwriting by reducing the number of
Registrable Securities included on behalf of the Holders, on a pro-rata basis
based on the total number of Registrable Securities entitled to registration
held by each Holder. The Company shall advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto
of any such limitations. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall not be included in such registration.
6. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 5 and Section 8 shall be borne by the Company. All Selling Expenses
relating to securities registered by the Holders shall be borne by the Holders
of such securities pro rata on the basis of the number of shares so registered.
7. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Effectiveness. Prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
thirty (30) days or until the distribution described in the registration
statement has been completed; provided, however, that such thirty (30) day
period shall be extended for
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<PAGE> 5
a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company;
(b) Amendments. Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(c) Copies of Documents. Furnish to the Holders participating
in such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(d) Blue Sky Laws. Use its best efforts to register and
qualify the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act;
(e) Underwriting Agreement. In the event of any underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering; provided that each Holder participating in such underwriting shall
also enter into and perform its obligations under such underwriting agreement;
(f) Notification. Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;
(g) Listing. Cause such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) Transfer Agent and Registrar. Provide a transfer agent and
registrar for all Registrable Securities registered pursuant hereunder and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration.
8. Registration on Form S-3. If the Holders holding at least fifty
percent (50%) of the total authorized Series A Preferred Stock request in
writing that the Company file a registration statement on
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<PAGE> 6
Form S-3 (or any successor form thereto) for a public offering of shares of
Registrable Securities the reasonably anticipated aggregate price to the public
of which would exceed five hundred thousand dollars ($500,000), and the Company
is a registrant entitled to use Form S-3 to register securities for such an
offering, the Company shall use its commercially reasonable efforts to cause
such shares to be registered for the offering on such form (or any successor
thereto). Notwithstanding the foregoing, the Company may delay the filing of a
registration statement requested pursuant to this Section 8 once in any twelve
(12) month period for a period of up to ninety (90) days if the Company's Board
of Directors determines that such a filing would not be in the best interest of
the Company at the time of the request. The Company will promptly give written
notice of a request for the proposed registration to all other Holders and
include all Registrable Securities of any Holder or Holders joining in such
request as are specified in a written request received by the Company within
thirty (30) days after the date of such written notice from the Company. The
Company shall be required to file no more than two (2) such registration
statements on Form S-3 pursuant to this Section 8.
9. Termination of Registration Rights. Except as provided elsewhere in
this Agreement, the registration rights granted pursuant to this Agreement shall
terminate (i) as to all Holders on the third anniversary of the closing of a
Qualified Public Offering and (ii) as to any Holder, at such time as such Holder
is able to sell all of its Registrable Securities under Rule 144 in a three (3)
month period or such Holder is able to sell all Registrable Securities held by
it pursuant to Rule 144(k) promulgated under the Securities Act.
10. Indemnification.
(a) Company Indemnification. The Company will indemnify each
Holder, each of its officers, directors and partners and such Holder's legal
counsel and independent accountants, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners and such Holder's legal counsel and
independent accountants, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that
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<PAGE> 7
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder or underwriter and stated
to be specifically for use therein.
(b) Holder Indemnification. Each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and its legal counsel and
independent accountants, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, legal counsel, independent
accountants, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of any such Holder hereunder shall be
limited to an amount equal to the gross proceeds before expenses and commissions
to such Holder of Registrable Securities sold as contemplated herein.
(c) Notification of Claim. Each party entitled to
indemnification under this Section 10 (the "INDEMNIFIED PARTY") shall give
notice to the party required to provide indemnification (the "INDEMNIFYING
PARTY") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
Indemnified Party (together with all other Indemnified Parties that may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding; and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its
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<PAGE> 8
obligations under this Agreement, except to the extent, but only to the extent,
that the Indemnifying Party's ability to defend against such claim or litigation
is impaired as a result of such failure to give notice. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in
paragraphs (a) and (b) of this Section 10 is unavailable or insufficient to hold
harmless an Indemnified Party thereunder, then each Indemnifying Party
thereunder shall contribute to the account paid or payable by such Indemnified
Party as a result of the losses, claims, damages, costs, expenses, liabilities
or actions referred to in paragraphs (a) and (b) of this Section 10 in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other in connection with
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this paragraph (d) of Section 10
were to be determined by pro rata or per capita allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the first sentence of this paragraph (d) of Section 10. The
amount paid by an Indemnified Party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this paragraph (d) of
Section 10 shall be deemed to include any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any action or claim which is the subject of this paragraph (d) of Section 10.
Promptly after receipt by an Indemnified Party of notice of the commencement of
any action against such party in respect of which a claim for contribution may
be made against an Indemnifying Party under this paragraph (d) of Section 10,
such Indemnified Party shall notify the Indemnifying Party in writing of the
commencement thereof if the notice specified in paragraph (c) of this Section 10
has not been given with respect to such action; provided that the omission so to
notify the Indemnifying Party shall not relieve the Indemnifying Party from any
liability which it may have to any Indemnified Party otherwise under this
paragraph (d) of Section 10, except to the extent that the Indemnifying Party is
actually prejudiced by such failure to give notice. The parties hereto agree
with each other and shall agree with the underwriters of the Common Stock of the
Company pursuant to the terms hereof, if requested by such underwriters, that
(a) the underwriters' portion of such contribution shall not exceed the
underwriting discount, commission and other compensation and (b) except for the
Company, the amount of such contribution shall not exceed an amount equal to the
proceeds received by such Indemnifying Party from the sale of securities in the
offering to which the losses, claims, damages or liabilities of the indemnified
parties relate. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act)
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<PAGE> 9
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
11. Lock-up Agreement. In consideration for the Company agreeing to its
obligations under this Agreement, each Holder of Registrable Securities and each
transferee pursuant to Section 14 hereof agrees, in connection with a Qualified
Public Offering, upon request of the Company or the underwriters managing such
offering, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities or other
securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as the Company or the
underwriters may specify. Each Holder agrees that the Company may instruct its
transfer agent to place stop transfer notations in its records to enforce the
provisions of this Section 11.
12. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
13. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Public Information. Make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times after the effective date of the first registration
under the Securities Act filed by the Company for an offering of its securities
to the general public;
(b) Filings with SEC. Use its best efforts to then file with
the Commission in a timely manner all reports and other documents required of
the Company under the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements); and
(c) Compliance Statement. Furnish to Holders of Registrable
Securities forthwith upon request, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time after ninety
(90) days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public), and of the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder of Registrable Securities may reasonably
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<PAGE> 10
request in availing itself of any rule or regulation of the Commission allowing
such Holder to sell any such securities without registration.
14. Information Rights. Upon request, the Company will furnish to any
Party, after the end of each fiscal year, unaudited, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and unaudited, consolidated statements of income and unaudited, consolidated
statements of cash flows of the Company and its subsidiaries, if any, for such
year, each signed by the principal financial or accounting officer of the
Company; provided, however, that such Party first executes a confidentiality
agreement in a form provided by the Company. The information rights set forth in
this Section 14 shall expire upon the closing date of a Qualified Public
Offering.
15. Transfer of Registration Rights and Information Rights. The right
granted hereunder to cause the Company to register securities or to participate
in a registration of the Company or to receive information of the Company
pursuant to Section 14 may not be assigned to any transferee or assignee of
Restricted Securities unless such transferee or assignee receives and thereafter
holds at least two hundred thousand (200,000) shares of Common Stock (as
adjusted for stock splits, combinations and the like) issued or issuable upon
conversion of the Series A Preferred Stock.
16. Right to Maintain.
(a) General. Until the closing date of a Qualified Public
Offering, if the Company desires to issue and sell shares of its capital stock
or rights, options or other securities exercisable for or convertible into
shares of its capital stock, then the Company shall first notify each Party of
the material terms of such proposed sale (such notice, a "COMPANY ISSUANCE
NOTICE"). The Company shall then permit each Party to acquire, at the time of
the closing of such sale, such number of the shares of capital stock or other
securities as would enable such Party to maintain its percentage of equity
ownership (calculated on a fully diluted basis, assuming the conversion of all
series of the Company's Preferred Stock and exercise of all options and other
rights to acquire Common Stock) in the Company following such issuance at a
level held by it immediately prior to such issuance. The Parties shall each have
ten (10) days after the delivery of any Company Issuance Notice to elect by
notice to the Company to purchase such shares or securities at the time of the
closing of such sale.
(b) Exceptions. The rights set forth in Section 16(a) shall
not apply to the issuance of (i) shares or grant of options (including shares
issuable upon exercise of such options) under any Company stock purchase and/or
stock option plans or arrangements approved by the Company's Board of Directors,
(ii) shares of Common Stock issued upon conversion of any series of preferred
stock of the Company, (iii) shares of the Company's capital stock or rights,
options or other securities issued pursuant to a stock split of the Common Stock
or Company declared dividend, (iv) Company securities (including, without
limitation, options, warrants and preferred stock) issued in connection with a
merger or acquisition or strategic partnering or joint venture agreement, (v)
Company securities (including, without limitation, options, warrants and
preferred stock) issued to banks, lenders, equipment financiers
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<PAGE> 11
and the like, (vi) shares of Common Stock sold in a Qualified Public Offering,
or (vii) shares of the Company's Series B Preferred Stock.
17. Right of First Refusal. Prior to the closing date of a Qualified
Public Offering, before there can be a valid sale or transfer for consideration
of any Restricted Securities by any holder thereof, such holder shall first
offer those Restricted Securities to the Company in the following manner:
(a) Notice. The holder of the Restricted Securities shall
deliver a written notice to the Company stating the price, terms, and conditions
of such proposed sale or transfer, the number and type of Restricted Securities
to be sold or transferred, and his intention to so sell or transfer such
Restricted Securities. Within thirty (30) days thereafter, the Company shall
have the prior right to purchase any and all of the Restricted Securities
offered at the price and upon the terms and conditions stated in such notice (it
being understood that the Company may assign this right in its sole discretion).
(b) Sale. If none or only a part of the Restricted Securities
in such holder's notice is purchased by the Company (or an assignee of the
Company) within a thirty (30) day period from the date of delivery of the notice
by such holder to the Company, the holder may sell or transfer to any person or
persons all Restricted Securities referred to in his notice that were not
purchased by the Company, but only within a period of one hundred twenty (120)
days from the date of his first notice; and provided that he shall not sell or
transfer such Restricted Securities at a lower price or on terms more favorable
to the purchaser or transferee than those specified in his notice to the
company. After said one hundred and twenty (120) day period, the foregoing
procedure for first offering the Restricted Securities to the Company shall
again apply.
(c) Restrictions. Any sale or transfer or purported sale or
transfer of the Restricted Securities of the Company shall be null and void
unless the terms, conditions, and provisions of Sections 2, 14 and this Section
17 are strictly observed and followed.
(d) Exception. The Parties expressly acknowledge that a
distribution of Restricted Securities by any holder thereof to a Family Member
or any Affiliate which is a partner of such holder shall not be considered a
"sale or transfer for consideration" which triggers the rights and obligations
described in this Section 17.
18. Governing Law. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the exclusive jurisdiction and venue of the United States District Court for the
Northern District of California with respect to the breach or interpretation of
this Agreement or the enforcement of any and all rights, duties, liabilities,
obligations, powers, and other relations between the parties arising under this
Agreement.
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<PAGE> 12
19. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.
20. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and deemed given on the business day
following delivery to the recipient in person or by overnight courier service or
by facsimile (with acknowledgment of transmission), and addressed (a) if to a
Series A Preferred Holder, to such holder's address set forth below, or at such
other address as such holder shall have furnished to the Company in writing, or
until any such holder so furnishes an address to the Company, then to the
address of the last holder of such securities who has so furnished an address to
the Company, or (b) if to the Company, to its address set forth on the signature
page of this Agreement, to the attention of the Chief Executive Officer, or at
such other address as the Company shall have furnished to the Holders.
21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one and
the same instrument.
22. Amendment. Any provision of this Agreement may be amended, waived,
modified, discharged or terminated only with the written consent of the Company
and with the written consent of the Party against whom enforcement is sought.
23. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
24. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
* * * *
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<PAGE> 13
IN WITNESS WHEREOF, the undersigned have executed this Series A
Preferred Stockholders' Rights Agreement as of the date set forth above.
"COMPANY" "INVESTOR"
GO2 TECHNOLOGIES, INC.
a Delaware Corporation Name of Investor
By:
--------------------------------------
Title:
-----------------------------------
By: Address:
---------------------------- ----------------------------------
Title:
--------------------------- ----------------------------------
[Signature pages to Series A Preferred Stockholders' Rights Agreement]
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<PAGE> 14
EXHIBIT A
SCHEDULE OF INVESTORS
Diane Kaplan
Kenneth Keer
Bill Gross' idealab!
Bruce Hendricks
<PAGE> 1
EXHIBIT 10.6
AMENDED AND RESTATED
SERIES B PREFERRED
STOCKHOLDERS' RIGHTS AGREEMENT
This Series B Preferred Stockholders' Rights Agreement (this
"AGREEMENT") is made as of May 7, 1998 by and between GoTo.com, Inc., a Delaware
corporation (the "COMPANY") and the entities listed on Exhibit A hereto (each an
"INVESTOR" and together, the "INVESTORS").
RECITALS
A. Certain of the Investors and the Company entered into that certain
Series B Preferred Stockholders' Rights Agreement, dated March 26, 1998 (the
"ORIGINAL RIGHTS AGREEMENT"), in connection with that certain Series B Preferred
Stock Purchase Agreement (the "ORIGINAL SERIES B
PURCHASE AGREEMENT") of the same date.
B. The parties to the Original Series B Purchase Agreement are amending
such agreement on the date hereof to provide for, among other things, a per
share purchase price of $0.77 and the addition of certain investors.
C. In conjunction therewith, the parties to the Original Rights
Agreement wish to amend and restate such agreement.
NOW, THEREFORE, In consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission or any
successor agency.
"COMMON STOCK" means the Common Stock of the Company.
"FAMILY MEMBER" has the meaning set forth for it in Section 4.
"HOLDER" means any holder of outstanding Registrable Securities
(or Series B Preferred Stock convertible into Registrable Securities, as the
case may be) which have not been sold to the public.
"PARTIES" means the parties that are signatories of this
Agreement; "PARTY" shall refer to any one of the Parties.
"QUALIFIED PUBLIC OFFERING" has the meaning set forth for it in
Section 5(a).
"RESTRICTED SECURITIES" means the securities of the Company
described in Section 3 hereof.
<PAGE> 2
"REGISTRABLE SECURITIES" means (i) shares of the Common Stock
issued or issuable upon the conversion of the Series B Preferred Stock; and (ii)
any other shares of the Company's Common Stock issued as (or issuable upon
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to or in exchange for or
replacement of the Series B Preferred Stock.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" means all reasonable out-of-pocket
expenses incurred by the Company in complying with Sections 5 and 8 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and accounting fees of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
"SERIES B PREFERRED STOCK" means the Series B Preferred Stock of
the Company.
2. Restrictions on Transferability. The Restricted Securities shall not
be transferable except upon the conditions specified in this Agreement
(including, without limitation, the provisions of Sections 4 and 18), which
conditions are intended, among other things, to ensure compliance with the
provisions of the Securities Act and other provisions. Each holder of Restricted
Securities will cause any proposed transferee of the Restricted Securities held
by such holder to agree in writing to take and hold such Restricted Securities
in accordance with the restrictions, obligations and conditions specified in
this Agreement (including, without limitation, the provisions of Sections 2, 3,
4, 11, 12 and 18) and to be bound by this Agreement in the same manner as the
transferring holder.
3. Restrictive Legend. Each certificate representing (i) shares of
Series B Preferred Stock, (ii) shares of Common Stock issued upon conversion of
the Series B Preferred Stock, and (iii) any other securities issued in respect
of the Series B Preferred Stock and Common Stock issued upon conversion of the
Series B Preferred Stock (any such securities listed in the preceding
subsections (i), (ii) or (iii), "RESTRICTED SECURITIES), shall (unless otherwise
permitted by the provisions of Section 4 below) be stamped or otherwise
imprinted with a legend in the following form (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
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<PAGE> 3
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT. COPIES
OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION
AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
4. Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall, if the Company so
requests, be accompanied (except in transactions in compliance with Rule 144) by
an unqualified written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, provided, however, that no opinion need
be obtained with respect to a transfer to (A) a partner, active or retired, of a
holder of Restricted Securities, (B) the estate of any such partner, (C) an
"affiliate" of a holder of Restricted Securities as that term is defined in Rule
405 promulgated by the Commission under the Securities Act (an"AFFILIATE"), or
(D) to the spouse, children, grandchildren or spouse of such children or
grandchildren of any holder or to trusts for the benefit of any Holder or such
persons where the holder is a natural person (each person or entity in this
subsection (D), a "FAMILY MEMBER"), if the transferee agrees to be subject to
the terms hereof. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth in Section 3 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for the Company such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
5. Company Registration.
(a) Notice of Registration. After the first firmly underwritten
public offering which is (i) pursuant to an effective registration statement
under the Securities Act covering the offer and sale of Common Stock and (ii)
the anticipated proceeds from such offering equals or exceeds $5,000,000, such
offering (a "QUALIFIED PUBLIC OFFERING") if the Company shall determine to
register any of its securities, either for its own account or the account of a
security holder, other than (A) a registration relating to employee benefit
plans or, (B) a registration relating to a Commission Rule 145 or similar
transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
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<PAGE> 4
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from the Company, by any Holder, except as set forth in Section 5(b) below.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5(a)(i). In such event the right of any Holder to
registration pursuant to Section 5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 5, if the managing
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter may limit to whatever extent necessary (including the complete
exclusion of all Registrable Securities) the number of Registrable Securities to
be included in the registration and underwriting by reducing the number of
Registrable Securities included on behalf of the Holders, on a pro-rata basis
based on the total number of Registrable Securities entitled to registration
held by each Holder. The Company shall advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto
of any such limitations. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall not be included in such registration.
6. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 5 and Section 8 shall be borne by the Company. All Selling Expenses
relating to securities registered by the Holders shall be borne by the Holders
of such securities pro rata on the basis of the number of shares so registered.
7. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Effectiveness. Prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
thirty (30) days or until the distribution described in the registration
statement has been completed; provided, however, that such thirty (30) day
period shall be extended for a period of time equal to the period the Holder
refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company;
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<PAGE> 5
(b) Amendments. Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(c) Copies of Documents. Furnish to the Holders participating in
such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(d) Blue Sky Laws. Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act;
(e) Underwriting Agreement. In the event of any underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering; provided that each Holder participating in such underwriting shall
also enter into and perform its obligations under such underwriting agreement;
(f) Notification. Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;
(g) Listing. Cause such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) Transfer Agent and Registrar. Provide a transfer agent and
registrar for all Registrable Securities registered pursuant hereunder and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration.
8. Registration on Form S-3. If the Holders holding at least fifty
percent (50%) of the total authorized Series B Preferred Stock request in
writing that the Company file a registration statement on Form S-3 (or any
successor form thereto) for a public offering of shares of Registrable
Securities the reasonably anticipated aggregate price to the public of which
would exceed five hundred thousand dollars ($500,000), and the Company is a
registrant entitled to use Form S-3 to register securities for
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<PAGE> 6
such an offering, the Company shall use its commercially reasonable efforts to
cause such shares to be registered for the offering on such form (or any
successor thereto). Notwithstanding the foregoing, the Company may delay the
filing of a registration statement requested pursuant to this Section 8 once in
any twelve (12) month period for a period of up to ninety (90) days if the
Company's Board of Directors determines that such a filing would not be in the
best interest of the Company at the time of the request. The Company will
promptly give written notice of a request for the proposed registration to all
other Holders and include all Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request received by the
Company within thirty (30) days after the date of such written notice from the
Company. The Company shall be required to file no more than two (2) such
registration statements on Form S-3 pursuant to this Section 8.
9. Termination of Registration Rights. Except as provided elsewhere in
this Agreement, the registration rights granted pursuant to this Agreement shall
terminate (i) as to all Holders on the third anniversary of the closing of a
Qualified Public Offering and (ii) as to any Holder, at such time as such Holder
is able to sell all of its Registrable Securities under Rule 144 in a three (3)
month period or such Holder is able to sell all Registrable Securities held by
it pursuant to Rule 144(k) promulgated under the Securities Act.
10. Indemnification.
(a) Company Indemnification. The Company will indemnify each
Holder, each of its officers, directors and partners and such Holder's legal
counsel and independent accountants, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners and such Holder's legal counsel and
independent accountants, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company
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<PAGE> 7
by an instrument duly executed by such Holder or underwriter and stated to be
specifically for use therein.
(b) Holder Indemnification. Each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and its legal counsel and
independent accountants, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, legal counsel, independent
accountants, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of any such Holder hereunder shall be
limited to an amount equal to the gross proceeds before expenses and commissions
to such Holder of Registrable Securities sold as contemplated herein.
(c) Notification of Claim. Each party entitled to indemnification
under this Section 10 (the "INDEMNIFIED PARTY") shall give notice to the party
required to provide indemnification (the "INDEMNIFYING PARTY") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnified Party
(together with all other Indemnified Parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding; and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is impaired as a result of such failure to give
notice. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the
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<PAGE> 8
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in
paragraphs (a) and (b) of this Section 10 is unavailable or insufficient to hold
harmless an Indemnified Party thereunder, then each Indemnifying Party
thereunder shall contribute to the account paid or payable by such Indemnified
Party as a result of the losses, claims, damages, costs, expenses, liabilities
or actions referred to in paragraphs (a) and (b) of this Section 10 in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other in connection with
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this paragraph (d) of Section 10
were to be determined by pro rata or per capita allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the first sentence of this paragraph (d) of Section 10. The
amount paid by an Indemnified Party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this paragraph (d) of
Section 10 shall be deemed to include any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any action or claim which is the subject of this paragraph (d) of Section 10.
Promptly after receipt by an Indemnified Party of notice of the commencement of
any action against such party in respect of which a claim for contribution may
be made against an Indemnifying Party under this paragraph (d) of Section 10,
such Indemnified Party shall notify the Indemnifying Party in writing of the
commencement thereof if the notice specified in paragraph (c) of this Section 10
has not been given with respect to such action; provided that the omission so to
notify the Indemnifying Party shall not relieve the Indemnifying Party from any
liability which it may have to any Indemnified Party otherwise under this
paragraph (d) of Section 10, except to the extent that the Indemnifying Party is
actually prejudiced by such failure to give notice. The parties hereto agree
with each other and shall agree with the underwriters of the Common Stock of the
Company pursuant to the terms hereof, if requested by such underwriters, that
(a) the underwriters' portion of such contribution shall not exceed the
underwriting discount, commission and other compensation and (b) except for the
Company, the amount of such contribution shall not exceed an amount equal to the
proceeds received by such Indemnifying Party from the sale of securities in the
offering to which the losses, claims, damages or liabilities of the indemnified
parties relate. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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<PAGE> 9
11. Lock-up Agreement. In consideration for the Company agreeing to its
obligations under this Agreement, each Holder of Registrable Securities and each
transferee pursuant to Section 14 hereof agrees, in connection with a Qualified
Public Offering, upon request of the Company or the underwriters managing such
offering, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities or other
securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as the Company or the
underwriters may specify. Each Holder agrees that the Company may instruct its
transfer agent to place stop transfer notations in its records to enforce the
provisions of this Section 11.
12. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
13. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Public Information. Make and keep public information available,
as those terms are understood and defined in Rule 144 under the Securities Act,
at all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Filings with SEC. Use its best efforts to then file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements); and
(c) Compliance Statement. Furnish to Holders of Registrable
Securities forthwith upon request, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time after ninety
(90) days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public), and of the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder of Registrable Securities may reasonably
request in availing itself of any rule or regulation of the Commission allowing
such Holder to sell any such securities without registration.
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<PAGE> 10
14. Information Rights. Upon request, the Company will furnish to any
Party, after the end of each fiscal year, unaudited, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and unaudited, consolidated statements of income and unaudited, consolidated
statements of cash flows of the Company and its subsidiaries, if any, for such
year, each signed by the principal financial or accounting officer of the
Company; provided, however, that such Party first executes a confidentiality
agreement in a form provided by the Company. The information rights set forth in
this Section 14 shall expire upon the closing date of a Qualified Public
Offering.
15. Transfer of Registration Rights and Information Rights. The right
granted hereunder to cause the Company to register securities or to participate
in a registration of the Company or to receive information of the Company
pursuant to Section 14 may not be assigned to any transferee or assignee of
Restricted Securities unless such transferee or assignee receives and thereafter
holds at least two hundred thousand (200,000) shares of Common Stock issued or
issuable upon conversion of the Series B Preferred Stock.
16. Right to Maintain.
(a) General. Until the closing date of a Qualified Public
Offering, if the Company desires to issue and sell shares of its capital stock
or rights, options or other securities exercisable for or convertible into
shares of its capital stock, then the Company shall first notify each Party of
the material terms of such proposed sale (such notice, a "COMPANY ISSUANCE
NOTICE"). The Company shall then permit each Party to acquire, at the time of
the closing of such sale, such number of the shares of capital stock or other
securities as would enable such Party to maintain its percentage of equity
ownership (calculated on a fully diluted basis, assuming the conversion of all
series of the Company's Preferred Stock and exercise of all options and other
rights to acquire Common Stock) in the Company following such issuance at a
level held by it immediately prior to such issuance. The Parties shall each have
ten (10) days after the delivery of any Company Issuance Notice to elect by
notice to the Company to purchase such shares or securities at the time of the
closing of such sale.
(b) Exceptions. The rights set forth in Section 16(a) shall not
apply to the issuance of (i) shares or grant of options (including shares
issuable upon exercise of such options) under any Company stock purchase and/or
stock option plans or arrangements approved by the Company's Board of Directors,
(ii) shares of Common Stock issued upon conversion of any series of preferred
stock of the Company, (iii) shares of the Company's capital stock or rights,
options or other securities issued pursuant to a stock split of the Common Stock
or Company declared dividend, (iv) Company securities (including, without
limitation, options, warrants and preferred stock) issued in connection with a
merger or acquisition or strategic partnering or joint venture agreement, (v)
Company securities (including, without limitation, options, warrants and
preferred stock) issued to banks, lenders, equipment financiers and the like, or
(vi) shares of Common Stock sold in a Qualified Public Offering.
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<PAGE> 11
17. Co-Sale Rights. If Bill Gross' idealab! ("IDEALAB!") desires to sell
any of the Common Stock it holds (such Common Stock, "FOUNDER'S COMMON STOCK")
other than Common Stock issued upon conversion of any series of the Company's
preferred stock (or any distribution thereon) to a purchaser other than any
Holder (a "THIRD PARTY"), the Parties shall be provided with the Co-Sale Rights
set forth in this Section 17 with respect to such sale.
(a) Rights Granted. Subject to Section 17(c), in the event that
idealab! proposes to sell any shares of its Founder's Common Stock (a "FOUNDER
SALE") to any Third Party, idealab! shall deliver a notice (a "CO-SALE NOTICE")
to the other Parties of such Founder Sale. Thereafter, the Parties shall have
the right, exercisable upon written notice to idealab! within ten (10) days
after delivery of the Co-Sale Notice to participate in the Founder Sale pursuant
to the terms and conditions set forth in the Co-Sale Notice. The right of the
Parties to participate in any Founder Sale shall be subject to the following
terms and conditions:
(i) Each of the Parties may sell all or any part of that
number of shares of Common Stock held by it up to a maximum equal to the product
obtained by multiplying (A) the number of shares of Common Stock to be sold in
the Founder Sale by (B) a fraction, the numerator of which is the number of
shares of Common Stock held by such Party (or issuable to such Party upon
conversion of shares of Series B Preferred Stock) immediately prior to the
Founder Sale, and the denominator of which is the aggregate number of shares of
Common Stock then outstanding (calculated on a fully-diluted basis, assuming the
conversion of all series of the Company's preferred stock and exercise of all
options and other rights to acquire Common Stock).
(ii) Each Party participating in the Founder Sale shall
deliver to idealab! for transfer to the Third Party one or more certificates,
properly endorsed for transfer, which represent the number of shares of Common
Stock that such Party elects to sell pursuant to this Section 17.
(iii) The certificates which such Party delivers to
idealab! pursuant to Section 17(a) shall be transferred to the Third Party
pursuant to the terms and conditions specified in the Co-Sale Notice, and
idealab! shall no later than five (5) days after the closing of the Founder
Sale, remit to such Party that portion of the sale proceeds to which it is
entitled by reason of its participation in such sale.
(b) Termination of Rights. The provisions of this Section 17
shall terminate on the date immediately prior to the closing date of a Qualified
Public Offering.
(c) Affiliate Transfers. Notwithstanding the foregoing, the
rights and obligations set forth in this Section 17 shall not apply to transfers
to affiliates of idealab!.
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<PAGE> 12
18. Right of First Refusal. Prior to the closing date of a Qualified
Public Offering, before there can be a valid sale or transfer for consideration
of any Restricted Securities by any holder thereof, such holder shall first
offer those Restricted Securities to the Company in the following manner:
(a) Notice. The holder of the Restricted Securities shall deliver
a written notice to the Company stating the price, terms, and conditions of such
proposed sale or transfer, the number and type of Restricted Securities to be
sold or transferred, and his intention to so sell or transfer such Restricted
Securities. Within thirty (30) days thereafter, the Company shall have the prior
right to purchase any and all of the Restricted Securities offered at the price
and upon the terms and conditions stated in such notice (it being understood
that the Company may assign this right in its sole discretion).
(b) Sale. If none or only a part of the Restricted Securities in
such holder's notice is purchased by the Company (or an assignee of the Company)
within a thirty (30) day period from the date of delivery of the notice by such
holder to the Company, the holder may sell or transfer to any person or persons
all Restricted Securities referred to in his notice that were not purchased by
the company, but only within a period of one hundred twenty (120) days from the
date of his first notice; and provided that he shall not sell or transfer such
Restricted Securities at a lower price or on terms more favorable to the
purchaser or transferee than those specified in his notice to the company. After
said one hundred and twenty (120) day period, the foregoing procedure for first
offering the Restricted Securities to the Company shall again apply.
(c) Restrictions. Any sale or transfer or purported sale or
transfer of the Restricted Securities of the Company shall be null and void
unless the terms, conditions, and provisions of Sections 2, 14 and this Section
18 are strictly observed and followed.
(d) Exception. The Parties expressly acknowledge that a
distribution of Restricted Securities by any holder thereof to a Family Member
or any Affiliate which is a partner of such holder shall not be considered a
"sale or transfer for consideration" which triggers the rights and obligations
described in this Section 18.
19. Governing Law. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the exclusive jurisdiction and venue of the United States District Court for the
Northern District of California with respect to the breach or interpretation of
this Agreement or the enforcement of any and all rights, duties, liabilities,
obligations, powers, and other relations between the parties arising under this
Agreement.
20. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.
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<PAGE> 13
21. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and deemed given on the business day
following delivery to the recipient in person or by overnight courier service or
by facsimile (with acknowledgment of transmission), and addressed (a) if to a
Series B Preferred Holder, to such holder's address set forth below, or at such
other address as such holder shall have furnished to the Company in writing, or
until any such holder so furnishes an address to the Company, then to the
address of the last holder of such securities who has so furnished an address to
the Company, or (b) if to the Company, to its address set forth on the signature
page of this Agreement, to the attention of the Chief Executive Officer, or at
such other address as the Company shall have furnished to the Holders.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one and
the same instrument.
23. Amendment. Any provision of this Agreement may be amended, waived,
modified, discharged or terminated only with the written consent of the Company
and with the written consent of the Party against whom enforcement is sought.
24. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
25. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
* * * *
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<PAGE> 14
IN WITNESS WHEREOF, the undersigned have executed this First Amended and
Restated Series B Preferred Stockholders' Rights Agreement as of the date set
forth above.
"COMPANY" "INVESTOR"
GOTO.COM, INC. ____________________________________
a Delaware Corporation Name of Investor
By:_________________________________
________________________________________ Title:______________________________
Jeffrey Brewer, Chief Executive Officer Address:____________________________
____________________________
[Signature pages to Series B Preferred Stockholders' Rights Agreement]
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<PAGE> 15
EXHIBIT A
INVESTORS
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<PAGE> 1
EXHIBIT 10.7
SERIES C PREFERRED
STOCKHOLDERS' RIGHTS AGREEMENT
This Series C Preferred Stockholders' Rights Agreement (this
"AGREEMENT") is made as of July 31, 1998 by and between GoTo.com, Inc., a
Delaware corporation (the "COMPANY") and the entities listed on Exhibit A hereto
(as may be supplemented from time to time as a result of additional issuances of
Series C Preferred Stock of the Company) (each an "INVESTOR" and together, the
"INVESTORS").
RECITALS
A. The Company proposes to sell and issue up to nine million seven
hundred thousand (9,700,000) shares of Series C Preferred Stock in one or more
closings pursuant to that certain Series C Preferred Stock Purchase Agreement
(the "PURCHASE AGREEMENT") dated of even date herewith;
B. As a condition of entering into the Purchase Agreement, the
Investors have requested that the Company extend to them registration rights and
other rights with respect to the Series C Preferred Stock as set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission or
any successor agency.
"COMMON STOCK" means the Common Stock of the Company.
"FAMILY MEMBER" has the meaning set forth for it in Section 4.
"HOLDER" means any holder of outstanding Registrable
Securities (or Series C Preferred Stock convertible into Registrable Securities,
as the case may be) which have not been sold to the public.
"INITIATING HOLDER" means a holder or holders of more than
forty percent (40%) of Registrable Securities.
"PARTIES" means the parties that are signatories of this
Agreement; "PARTY" shall refer to any one of the Parties.
"QUALIFIED PUBLIC OFFERING" has the meaning set forth for it
in Section 5(a).
"RESTRICTED SECURITIES" means the securities of the Company
described in Section 3 hereof.
<PAGE> 2
"REGISTRABLE SECURITIES" means (i) shares of the Common Stock
issued or issuable upon the conversion of the Series C Preferred Stock; and (ii)
any other shares of the Company's Common Stock issued as (or issuable upon
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to or in exchange for or
replacement of the Series C Preferred Stock.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" means all reasonable out-of-pocket
expenses incurred by the Company in complying with Sections 5 and 8 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and accounting fees of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
"SERIES C PREFERRED STOCK" means the Series C Preferred Stock
of the Company.
2. Restrictions on Transferability. The Restricted Securities shall not
be transferable except upon the conditions specified in this Agreement
(including, without limitation, the provisions of Sections 4 and 17), which
conditions are intended, among other things, to ensure compliance with the
provisions of the Securities Act and other provisions. Each holder of Restricted
Securities will cause any proposed transferee of the Restricted Securities held
by such holder to agree in writing to take and hold such Restricted Securities
in accordance with the restrictions, obligations and conditions specified in
this Agreement (including, without limitation, the provisions of Sections 2, 3,
4, 11, 12 and 17) and to be bound by this Agreement in the same manner as the
transferring holder.
3. Restrictive Legend. Each certificate representing (i) shares of
Series C Preferred Stock, (ii) shares of Common Stock issued upon conversion of
the Series C Preferred Stock, and (iii) any other securities issued in respect
of the Series C Preferred Stock and Common Stock issued upon conversion of the
Series C Preferred Stock (any such securities listed in the preceding
subsections (i), (ii) or (iii), "RESTRICTED SECURITIES), shall (unless otherwise
permitted by the provisions of Section 4 below) be stamped or otherwise
imprinted with a legend in the following form (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THESE SHARES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE SECURITIES
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<PAGE> 3
ACT. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
4. Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall, if the Company so
requests, be accompanied (except in transactions in compliance with Rule 144) by
an unqualified written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, provided, however, that no opinion need
be obtained with respect to a transfer to (A) a partner, active or retired, of a
holder of Restricted Securities, (B) the estate of any such partner, (C) an
"affiliate" of a holder of Restricted Securities as that term is defined in Rule
405 promulgated by the Commission under the Securities Act (an "AFFILIATE"), or
(D) to the spouse, children, grandchildren or spouse of such children or
grandchildren of any holder or to trusts for the benefit of any Holder or such
persons where the holder is a natural person (each person or entity in this
subsection (D), a "FAMILY MEMBER"), if the transferee agrees to be subject to
the terms hereof. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth in Section 3 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for the Company such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
5. Company Registration.
(a) Notice of Registration. After the first firmly
underwritten public offering (i) which is pursuant to an effective registration
statement under the Securities Act covering the offer and sale of Common Stock
and (ii) in which the anticipated proceeds from such offering equals or exceeds
$5,000,000, (such offering a "QUALIFIED PUBLIC OFFERING") if the Company shall
determine to register any of its securities, either for its own account or the
account of a security holder, other than (A) a registration relating to employee
benefit plans or, (B) a registration relating to a Commission Rule 145 or
similar transaction, the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities
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<PAGE> 4
specified in a written request or requests, made within thirty (30) days after
receipt of such written notice from the Company, by any Holder, except as set
forth in Section 5(b) below.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5(a)(i). In such event the right of any Holder to
registration pursuant to Section 5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 5, if the managing
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter may limit to whatever extent necessary (including the complete
exclusion of all Registrable Securities) the number of Registrable Securities to
be included in the registration and underwriting by reducing the number of
Registrable Securities included on behalf of the Holders, on a pro-rata basis
based on the total number of Registrable Securities entitled to registration
held by each Holder. The Company shall advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto
of any such limitations. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall not be included in such registration. To facilitate
the allocation of shares in accordance with the above provisions, the Company or
the underwriters may round the number of shares allocated to any Initiating
Holder or Other Holder to the nearest one hundred (100) shares.
6. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 5 and 8 shall be borne by the Company. All Selling Expenses relating to
securities registered by the Holders shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.
7. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Effectiveness. Prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
thirty (30) days or until the distribution described in the registration
statement has been completed; provided, however, that such thirty (30) day
period shall be extended for a period of time equal to the period the Holder
refrains from selling any securities included in such
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<PAGE> 5
registration at the request of an underwriter of Common Stock (or other
securities) of the Company or the Company;
(b) Amendments. Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(c) Copies of Documents. Furnish to the Holders participating
in such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters or
such Holders may reasonably request in order to facilitate the public offering
of such securities;
(d) Blue Sky Laws. Use its best efforts to register and
qualify the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act;
(e) Underwriting Agreement. In the event of any underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering; provided that each Holder participating in such underwriting shall
also enter into and perform its obligations under such underwriting agreement;
(f) Notification. Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;
(g) Listing. Cause such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) Transfer Agent and Registrar. Provide a transfer agent and
registrar for all Registrable Securities registered pursuant hereunder and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration.
8. Registration on Form S-1 or S-3. If, following the date that is one
(1) year following a Qualified Public Offering, the Holders holding at least
fifty percent (50%) of the total Registrable
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<PAGE> 6
Securities request in writing that the Company file a registration statement on
Form S-1 or S-3 (or any successor form(s) thereto) for a public offering of
shares of Registrable Securities the reasonably anticipated aggregate price to
the public of which would exceed two million dollars ($2,000,000) with respect
to a registration on Form S-1 and five hundred thousand dollars ($500,000) with
respect to a registration on Form S-3, and, if applicable, the Company is a
registrant entitled to use Form S-3 to register securities for such an offering,
the Company shall use its commercially reasonable efforts to cause such shares
to be registered for the offering on such form (or any successor thereto).
Notwithstanding the foregoing, the Holders may only request the Company to file
a registration statement on Form S-1, if the Company is not entitled to register
securities using Form S-3. Notwithstanding the foregoing, the Company may delay
the filing of a registration statement requested pursuant to this Section 8 once
in any twelve (12) month period for a period of up to ninety (90) days if the
Company's Board of Directors determines that such a filing would not be in the
best interest of the Company at the time of the request; provided, however, that
in the event that holders of Common Stock, which prior to conversion were either
Series A Preferred Stock or Series B Preferred Stock of the Company, exercise
demand registration rights granted to such holders and such registration is
underwritten, and the Holders hereunder exercise piggyback registration rights
with respect to such underwriting pursuant to Section 5(b) hereof and such
piggybacking Holders are not permitted to include all Registrable Securities
requested in such underwriting, then the foregoing right of the Company to delay
shall not be applicable. The Company will promptly give written notice of a
request for the proposed registration to all other Holders and include all
Registrable Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within thirty (30) days
after the date of such written notice from the Company. The Company shall be
required to file no more than two (2) such registration statements in the
aggregate, only one of which can be on Form S-1, pursuant to this Section 8.
9. Termination of Registration Rights. Except as provided elsewhere in
this Agreement, the registration rights granted pursuant to this Agreement shall
terminate (i) as to all Holders on the fifth anniversary of the closing of a
Qualified Public Offering and (ii) as to any Holder, at such time as such Holder
holds less than one percent (1%) of the total outstanding shares of Common Stock
of the Company (and is therefore able to sell all of its Registrable Securities
under Rule 144 in a three (3) month period) or such Holder is able to sell all
Registrable Securities held by it pursuant to Rule 144(k) promulgated under the
Securities Act.
10. Indemnification.
(a) Company Indemnification. The Company will indemnify each
Holder, each of its officers, directors and partners and such Holder's legal
counsel and independent accountants, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, arising out of or based
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<PAGE> 7
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors and
partners and such Holder's legal counsel and independent accountants, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder or underwriter and stated to be specifically for
use therein.
(b) Holder Indemnification. Each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and its legal counsel and
independent accountants, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, legal counsel, independent
accountants, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of any such Holder hereunder shall be
limited to an amount equal to the gross proceeds before expenses and commissions
to such Holder of Registrable Securities sold as contemplated herein.
(c) Notification of Claim. Each party entitled to
indemnification under this Section 10 (the "INDEMNIFIED PARTY") shall give
notice to the party required to provide indemnification (the "INDEMNIFYING
PARTY") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of
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<PAGE> 8
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnified Party
(together with all other Indemnified Parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding; and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is impaired as a result of such failure to give
notice. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) Contribution. If the indemnification provided for in
paragraphs (a) and (b) of this Section 10 is unavailable or insufficient to hold
harmless an Indemnified Party thereunder, then each Indemnifying Party
thereunder shall contribute to the account paid or payable by such Indemnified
Party as a result of the losses, claims, damages, costs, expenses, liabilities
or actions referred to in paragraphs (a) and (b) of this Section 10 in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other in connection with
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this paragraph (d) of Section 10
were to be determined by pro rata or per capita allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the first sentence of this paragraph (d) of Section 10. The
amount paid by an Indemnified Party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this paragraph (d) of
Section 10 shall be deemed to include any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any action or claim which is the subject of this paragraph (d) of Section 10.
Promptly after receipt by an Indemnified Party of notice of the commencement of
any action against such party in respect of which a claim for contribution may
be made against an Indemnifying Party under this paragraph (d) of Section 10,
such Indemnified Party shall notify the Indemnifying Party in writing of the
commencement thereof if the notice specified in paragraph (c) of this Section 10
has not been given with respect to such action; provided that the omission so to
notify the Indemnifying Party shall not relieve the Indemnifying Party from any
liability which it may have to any Indemnified Party otherwise under this
paragraph (d)
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<PAGE> 9
of Section 10, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to give notice. The parties hereto agree with each
other and shall agree with the underwriters of the Common Stock of the Company
pursuant to the terms hereof, if requested by such underwriters, that (a) the
underwriters' portion of such contribution shall not exceed the underwriting
discount, commission and other compensation and (b) except for the Company, the
amount of such contribution shall not exceed an amount equal to the proceeds
received by such Indemnifying Party from the sale of securities in the offering
to which the losses, claims, damages or liabilities of the indemnified parties
relate. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
11. Lock-up Agreement. In consideration for the Company agreeing to its
obligations under this Agreement, each Holder of Registrable Securities and each
transferee pursuant to Section 15 hereof agrees, in connection with a Qualified
Public Offering, upon request of the Company or the underwriters managing such
offering, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities or other
securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as the Company or the
underwriters may specify. Each Holder agrees that the Company may instruct its
transfer agent to place stop transfer notations in its records to enforce the
provisions of this Section 11.
12. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
13. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Public Information. Make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times after the effective date of the first registration
under the Securities Act filed by the Company for an offering of its securities
to the general public;
(b) Filings with SEC. Use its best efforts to then file with
the Commission in a timely manner all reports and other documents required of
the Company under the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements); and
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<PAGE> 10
(c) Compliance Statement. Furnish to Holders of Registrable
Securities forthwith upon request, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time after ninety
(90) days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public), and of the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder of Registrable Securities may reasonably
request in availing itself of any rule or regulation of the Commission allowing
such Holder to sell any such securities without registration.
14. Information Rights. Upon request, the Company will furnish to any
Party, after the end of each fiscal year, unaudited, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and unaudited, consolidated statements of income and unaudited, consolidated
statements of cash flows of the Company and its subsidiaries, if any, for such
year, each signed by the principal financial or accounting officer of the
Company; provided, however, that such Party first executes a confidentiality
agreement in a form provided by the Company. The information rights set forth in
this Section 14 shall expire upon the closing date of a Qualified Public
Offering.
15. Transfer of Registration Rights and Information Rights. The right
granted hereunder to cause the Company to register securities or to participate
in a registration of the Company or to receive information of the Company
pursuant to Section 14 may not be assigned to any transferee or assignee of
Restricted Securities unless such transferee or assignee receives and thereafter
holds at least two hundred thousand (200,000) shares of Common Stock issued or
issuable upon conversion of the Series C Preferred Stock.
16. Right to Maintain.
(a) General. Until the closing date of a Qualified Public
Offering, if the Company desires to issue and sell shares of its capital stock
or rights, options or other securities exercisable for or convertible into
shares of its capital stock, then the Company shall first notify each Party of
the material terms of such proposed sale (such notice, a "COMPANY ISSUANCE
NOTICE"). The Company shall then permit each Party to acquire, at the time of
the closing of such sale, such number of the shares of capital stock or other
securities as would enable such Party to maintain its percentage of equity
ownership (calculated on a fully diluted basis, assuming the conversion of all
series of the Company's Preferred Stock and exercise of all options and other
rights to acquire Common Stock) in the Company following such issuance at a
level held by it immediately prior to such issuance. The Parties shall each have
ten (10) days after the delivery of any Company Issuance Notice to elect by
notice to the Company to purchase such shares or securities at the time of the
closing of such sale.
(b) Exceptions. The rights set forth in Section 16(a) shall
not apply to the issuance of (i) shares or grant of options (including shares
issuable upon exercise of such options) to any employee, consultant, or director
of the Company, or banks, building developers or equipment lessors,
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<PAGE> 11
under any Company stock purchase and/or stock option plans or arrangements
approved by the Company's Board of Directors, (ii) shares of Common Stock issued
upon conversion of any series of preferred stock of the Company, (iii) shares of
the Company's capital stock or rights, options or other securities issued
pursuant to a stock split of the Common Stock or Company declared dividend, (iv)
Company securities (including, without limitation, options, warrants and
preferred stock) issued in connection with a merger or acquisition or strategic
partnering or joint venture agreement, (v) Company securities (including,
without limitation, options, warrants and preferred stock) issued to banks,
lenders, equipment financiers and the like, or (vi) shares of Common Stock sold
in a Qualified Public Offering.
17. Right of First Refusal. Prior to the closing date of a Qualified
Public Offering, before there can be a valid sale or transfer for consideration
of any Restricted Securities by any holder thereof, such holder shall first
offer those Restricted Securities to the Company in the following manner:
(a) Notice. The holder of the Restricted Securities shall
deliver a written notice to the Company stating the price, terms, and conditions
of such proposed sale or transfer, the number and type of Restricted Securities
to be sold or transferred, and his intention to so sell or transfer such
Restricted Securities. Within thirty (30) days thereafter, the Company shall
have the prior right to purchase any and all of the Restricted Securities
offered at the price and upon the terms and conditions stated in such notice (it
being understood that the Company may assign this right in its sole discretion).
(b) Sale. If none or only a part of the Restricted Securities
in such holder's notice is purchased by the Company (or an assignee of the
Company) within a thirty (30) day period from the date of delivery of the notice
by such holder to the Company, the holder may sell or transfer to any person or
persons all Restricted Securities referred to in his notice that were not
purchased by the Company, but only within a period of one hundred twenty (120)
days from the date of his first notice; and provided that he shall not sell or
transfer such Restricted Securities at a lower price or on terms more favorable
to the purchaser or transferee than those specified in his notice to the
Company. After said one hundred and twenty (120) day period, the foregoing
procedure for first offering the Restricted Securities to the Company shall
again apply.
(c) Restrictions. Any sale or transfer or purported sale or
transfer of the Restricted Securities of the Company shall be null and void
unless the terms, conditions, and provisions of Sections 2, 4 and this Section
17 are strictly observed and followed.
(d) Exception. The Parties expressly acknowledge that a
distribution of Restricted Securities by any holder thereof to a Family Member
or any Affiliate of such holder shall not be considered a "sale or transfer for
consideration" which triggers the rights and obligations described in this
Section 17.
18. Moore Capital Investments, Ltd. Observer Right. For so long as the
Investors listed on Exhibit A hereto ("MOORE") (together with their Affiliates)
holds at least fifty percent (50%) of the Series C Preferred Stock originally
issued to Moore, Moore shall have the right to designate a
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<PAGE> 12
representative (the "MOORE OBSERVER") to attend all meetings of the Company's
Board of Directors (the "BOARD") (whether in person, telephonic or otherwise) in
a non-voting observer capacity and, in this respect, the Company shall give to
Moore, concurrently with the members of the Board, and in the same manner,
copies of all notices, minutes and consents (the "BOARD DOCUMENTS") that it
provides to its directors and such representative shall agree to hold in
confidence and trust all information so provided. The Moore Observer may be
excluded from meetings of the Board, or portions thereof, and notwithstanding
the foregoing sentence, any Board Documents may be withheld and not delivered to
Moore, if the Board determines in good faith and for reasonable business
purposes that it is in the Company's best interest to exclude the Moore Observer
or withhold Board Documents. The observer right granted pursuant to this Section
18 shall terminate (i) immediately prior to a Qualified Public Offering or (ii)
following a Change in Control (as defined in the Restated Certificate).
19. Governing Law. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the exclusive jurisdiction and venue of the United States District Court for the
Northern District of California with respect to the breach or interpretation of
this Agreement or the enforcement of any and all rights, duties, liabilities,
obligations, powers, and other relations between the parties arising under this
Agreement.
20. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.
21. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and deemed given on the business day
following delivery to the recipient in person or by overnight courier service or
by facsimile (with acknowledgment of transmission), and addressed (a) if to a
Series C Preferred Holder, to such holder's address set forth below, or at such
other address as such holder shall have furnished to the Company in writing, or
until any such holder so furnishes an address to the Company, then to the
address of the last holder of such securities who has so furnished an address to
the Company, or (b) if to the Company, to its address set forth on the signature
page of this Agreement, to the attention of the Chief Executive Officer, or at
such other address as the Company shall have furnished to the Holders.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one and
the same instrument.
23. Amendment. Any provision of this Agreement may be amended, waived,
modified, discharged or terminated only with the written consent of the Company
and the holders of a majority in interest of the Series C Preferred Stock (or
Common Stock issuable upon conversion thereof). Any
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<PAGE> 13
amendment or waiver effected in accordance with this paragraph will be binding
upon the Company and each holder of any securities subject to this Agreement
(including securities into which such securities are convertible) and future
holders of all such securities. Any Holder may waive his or her rights or the
Company's obligations hereunder without obtaining the consent of any other
person.
24. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
25. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
26. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
* * * *
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<PAGE> 14
IN WITNESS WHEREOF, the undersigned have executed this Series C
Preferred Stockholders' Rights Agreement as of the date set forth above.
"COMPANY" "INVESTOR"
GOTO.COM, INC. Moore Global Investments, Ltd.
a Delaware Corporation
By: Moore Capital Management, Inc.
Its: Trading Advisor
- --------------------------------
Jeffrey Brewer,
Chief Executive Officer
--------------------------------------------
Savvas Savvinidis
Title: Director of Operations
Address: c/o Citco Fund Services
(Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
Multi-Strategies Fund Ltd.
By: Moore Capital Management, Inc.
Its: Trading Advisor
--------------------------------------------
Savvas Savvinidis
Title: Director of Operations
Address: c/o Citco Fund Services
(Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
[Signature pages to Series C Preferred Stockholders' Rights Agreement]
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<PAGE> 15
Remington Investment Strategies, L.P.
By: Moore Capital Advisors, L.L.C.
Its: General Partner
--------------------------------------------
Savvas Savvinidis
Title: Director of Operations
Address: 1251 Avenue of the Americas
New York, NY 10020
Multi-Strategies Fund, L.P.
By: Moore Capital Advisors, L.L.C.
Its: Trading Advisor
--------------------------------------------
Savvas Savvinidis
Title: Director of Operations
Address: 1251 Avenue of the Americas
New York, NY 10020
[Signature pages to Series C Preferred Stockholders' Rights Agreement]
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<PAGE> 16
EXHIBIT A
INVESTORS
Moore Global Investments, Ltd.
c/o Citco Fund Services (Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
Multi-Strategies Fund Ltd.
c/o Citco Fund Services (Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
Remington Investment Strategies, L.P.
1251 Avenue of the Americas
New York, NY 10020
Multi-Strategies Fund, L.P.
1251 Avenue of the Americas
New York, NY 10020
Draper Richards, L.P.
50 California Street, Suite 2925
San Francisco, CA 94111
Hughes Family 1998 Revocable Trust
Hughes Family 1998 Irrevocable Trust
Larry W. Sonsini
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Martin W. Korman
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
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<PAGE> 17
Greg Brogger
130 W. Union Street
Pasadena, CA 91103
WS Investment Company 98B
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
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<PAGE> 1
EXHIBIT 10.8
SERIES D PREFERRED
STOCKHOLDERS' RIGHTS AGREEMENT
This Series D Preferred Stockholders' Rights Agreement (this
"AGREEMENT") is made as of April __, 1999 by and between GoTo.com, Inc., a
Delaware corporation (the "COMPANY") and the entities listed on Exhibit A hereto
(as may be supplemented from time to time as a result of additional issuances of
Series D Preferred Stock of the Company) (each an "INVESTOR" and together, the
"INVESTORS").
RECITALS
A. The Company proposes to sell and issue up to three million six
hundred twenty eight four hundred forty seven (3,628,447) shares of Series D
Preferred Stock in one or more closings pursuant to that certain Series D
Preferred Stock Purchase Agreement (the "PURCHASE AGREEMENT") dated as of the
date herewith;
B. As a condition of entering into the Purchase Agreement, the
Investors have requested that the Company extend to them registration rights and
other rights with respect to the Series D Preferred Stock as set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission or
any successor agency.
"COMMON STOCK" means the Common Stock of the Company.
"FAMILY MEMBER" has the meaning set forth for it in Section 4.
"HOLDER" means any holder of outstanding Registrable
Securities (or Series D Preferred Stock convertible into Registrable Securities,
as the case may be) which have not been sold to the public.
"INITIATING HOLDER" means a holder or holders of more than
forty percent (40%) of Registrable Securities.
"PARTIES" means the parties that are signatories of this
Agreement; "PARTY" shall refer to any one of the Parties.
"QUALIFIED PUBLIC OFFERING" has the meaning set forth for it
in Section 5(a).
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"RESTRICTED SECURITIES" means the securities of the Company
described in Section 3 hereof.
"REGISTRABLE SECURITIES" means (i) shares of the Common Stock
issued or issuable upon the conversion of the Series D Preferred Stock; and (ii)
any other shares of the Company's Common Stock issued as (or issuable upon
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to or in exchange for or
replacement of the Series D Preferred Stock.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" means all reasonable out-of-pocket
expenses incurred by the Company in complying with Sections 5 and 8 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and accounting fees of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
"SERIES D PREFERRED STOCK" means the Series D Preferred Stock
of the Company.
2. Restrictions on Transferability. The Restricted Securities shall not
be transferable except upon the conditions specified in this Agreement
(including, without limitation, the provisions of Sections 4 and 17), which
conditions are intended, among other things, to ensure compliance with the
provisions of the Securities Act and other provisions. Each holder of Restricted
Securities will cause any proposed transferee of the Restricted Securities held
by such holder to agree in writing to take and hold such Restricted Securities
in accordance with the restrictions, obligations and conditions specified in
this Agreement (including, without limitation, the provisions of Sections 2, 3,
4, 11, 12 and 17) and to be bound by this Agreement in the same manner as the
transferring holder.
3. Restrictive Legend. Each certificate representing (i) shares of
Series D Preferred Stock, (ii) shares of Common Stock issued upon conversion of
the Series D Preferred Stock, and (iii) any other securities issued in respect
of the Series D Preferred Stock and Common Stock issued upon conversion of the
Series D Preferred Stock (any such securities listed in the preceding
subsections (i), (ii) or (iii), "RESTRICTED SECURITIES), shall (unless otherwise
permitted by the provisions of Section 4 below) be stamped or otherwise
imprinted with a legend in the following form (in addition to any legend
required under applicable state securities laws):
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<PAGE> 3
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THESE SHARES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE SECURITIES ACT. COPIES OF THE AGREEMENTS COVERING
THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
4. Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall, if the Company so
requests, be accompanied (except in transactions in compliance with Rule 144) by
an unqualified written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, provided, however, that no opinion need
be obtained with respect to a transfer to (A) a partner, active or retired, of a
holder of Restricted Securities, (B) the estate of any such partner, (C) an
"affiliate" of a holder of Restricted Securities as that term is defined in Rule
405 promulgated by the Commission under the Securities Act (an "AFFILIATE"), or
(D) to the spouse, children, grandchildren or spouse of such children or
grandchildren of any holder or to trusts for the benefit of any Holder or such
persons where the holder is a natural person (each person or entity in this
subsection (D), a "FAMILY MEMBER"), if the transferee agrees to be subject to
the terms hereof. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth in Section 3 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for the Company such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
5. Company Registration.
(a) Notice of Registration. After the first firmly
underwritten public offering (i) which is pursuant to an effective registration
statement under the Securities Act covering the offer and sale of Common Stock
and (ii) in which the anticipated proceeds from such offering equals or exceeds
$30,000,000 at a per share price of at least $2.60, (such offering a "QUALIFIED
PUBLIC OFFERING") if the Company shall determine to register any of its
securities, either for its own account or the account of a
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<PAGE> 4
security holder, other than (A) a registration relating to employee benefit
plans or, (B) a registration relating to a Commission Rule 145 or similar
transaction, the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from the Company, by any Holder, except as set forth in Section 5(b) below.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5(a)(i). In such event the right of any Holder to
registration pursuant to Section 5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 5, if the managing
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter may limit to whatever extent necessary (including the complete
exclusion of all Registrable Securities) the number of Registrable Securities to
be included in the registration and underwriting by reducing the number of
Registrable Securities included on behalf of the Holders, on a pro-rata basis
based on the total number of Registrable Securities entitled to registration
held by each Holder. The Company shall advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto
of any such limitations. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall not be included in such registration. To facilitate
the allocation of shares in accordance with the above provisions, the Company or
the underwriters may round the number of shares allocated to any Initiating
Holder or Other Holder to the nearest one hundred (100) shares.
6. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 5 and 8 shall be borne by the Company. All Selling Expenses relating to
securities registered by the Holders shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.
7. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in
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<PAGE> 5
writing as to the initiation of each registration, qualification and compliance
and as to the completion thereof. At its expense the Company will:
(a) Effectiveness. Prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
thirty (30) days or until the distribution described in the registration
statement has been completed; provided, however, that such thirty (30) day
period shall be extended for a period of time equal to the period the Holder
refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company
or the Company;
(b) Amendments. Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(c) Copies of Documents. Furnish to the Holders participating
in such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters or
such Holders may reasonably request in order to facilitate the public offering
of such securities;
(d) Blue Sky Laws. Use its best efforts to register and
qualify the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act;
(e) Underwriting Agreement. In the event of any underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering; provided that each Holder participating in such underwriting shall
also enter into and perform its obligations under such underwriting agreement;
(f) Notification. Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;
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<PAGE> 6
(g) Listing. Cause such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) Transfer Agent and Registrar. Provide a transfer agent and
registrar for all Registrable Securities registered pursuant hereunder and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration.
8. Registration on Form S-1 or S-3. If, following the date that is one
(1) year following a Qualified Public Offering, the Holders holding at least
fifty percent (50%) of the total Registrable Securities request in writing that
the Company file a registration statement on Form S-1 or S-3 (or any successor
form(s) thereto) for a public offering of shares of Registrable Securities the
reasonably anticipated aggregate price to the public of which would exceed two
million dollars ($2,000,000) with respect to a registration on Form S-1 and five
hundred thousand dollars ($500,000) with respect to a registration on Form S-3,
and, if applicable, the Company is a registrant entitled to use Form S-3 to
register securities for such an offering, the Company shall use its commercially
reasonable efforts to cause such shares to be registered for the offering on
such form (or any successor thereto). Notwithstanding the foregoing, the Holders
may only request the Company to file a registration statement on Form S-1, if
the Company is not entitled to register securities using Form S-3.
Notwithstanding the foregoing, the Company may delay the filing of a
registration statement requested pursuant to this Section 8 once in any twelve
(12) month period for a period of up to ninety (90) days if the Company's Board
of Directors determines that such a filing would not be in the best interest of
the Company at the time of the request; provided, however, that in the event
that holders of Common Stock, which prior to conversion were either Series A
Preferred Stock or Series B Preferred Stock of the Company, exercise demand
registration rights granted to such holders and such registration is
underwritten, and the Holders hereunder exercise piggyback registration rights
with respect to such underwriting pursuant to Section 5(b) hereof and such
piggybacking Holders are not permitted to include all Registrable Securities
requested in such underwriting, then the foregoing right of the Company to delay
shall not be applicable. The Company will promptly give written notice of a
request for the proposed registration to all other Holders and include all
Registrable Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within thirty (30) days
after the date of such written notice from the Company. The Company shall be
required to file no more than two (2) such registration statements in the
aggregate, only one of which can be on Form S-1, pursuant to this Section 8.
9. Termination of Registration Rights. Except as provided elsewhere in
this Agreement, the registration rights granted pursuant to this Agreement shall
terminate (i) as to all Holders on the fifth anniversary of the closing of a
Qualified Public Offering and (ii) as to any Holder, at such time as such Holder
holds less than one percent (1%) of the total outstanding shares of Common Stock
of the Company (and is therefore able to sell all of its Registrable Securities
under Rule 144 in a three (3) month period) or such Holder is able to sell all
Registrable Securities held by it pursuant to Rule 144(k) promulgated under the
Securities Act.
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<PAGE> 7
10. Indemnification.
(a) Company Indemnification. The Company will indemnify each
Holder, each of its officers, directors and partners and such Holder's legal
counsel and independent accountants, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners and such Holder's legal counsel and
independent accountants, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder or underwriter and stated
to be specifically for use therein.
(b) Holder Indemnification. Each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and its legal counsel and
independent accountants, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, legal counsel, independent
accountants, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or
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<PAGE> 8
alleged omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder and stated to be specifically for use therein; provided, however, that
the obligations of any such Holder hereunder shall be limited to an amount equal
to the gross proceeds before expenses and commissions to such Holder of
Registrable Securities sold as contemplated herein.
(c) Notification of Claim. Each party entitled to
indemnification under this Section 10 (the "INDEMNIFIED PARTY") shall give
notice to the party required to provide indemnification (the "INDEMNIFYING
PARTY") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
Indemnified Party (together with all other Indemnified Parties that may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding; and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement, except
to the extent, but only to the extent, that the Indemnifying Party's ability to
defend against such claim or litigation is impaired as a result of such failure
to give notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) Contribution. If the indemnification provided for in
paragraphs (a) and (b) of this Section 10 is unavailable or insufficient to hold
harmless an Indemnified Party thereunder, then each Indemnifying Party
thereunder shall contribute to the account paid or payable by such Indemnified
Party as a result of the losses, claims, damages, costs, expenses, liabilities
or actions referred to in paragraphs (a) and (b) of this Section 10 in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other in connection with
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this paragraph (d) of Section 10
were to be determined by pro rata or per capita allocation or by any other
method of allocation which does not take account of the
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<PAGE> 9
equitable considerations referred to in the first sentence of this paragraph (d)
of Section 10. The amount paid by an Indemnified Party as a result of the
losses, claims, damages or liabilities referred to in the first sentence of this
paragraph (d) of Section 10 shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any action or claim which is the subject of this
paragraph (d) of Section 10. Promptly after receipt by an Indemnified Party of
notice of the commencement of any action against such party in respect of which
a claim for contribution may be made against an Indemnifying Party under this
paragraph (d) of Section 10, such Indemnified Party shall notify the
Indemnifying Party in writing of the commencement thereof if the notice
specified in paragraph (c) of this Section 10 has not been given with respect to
such action; provided that the omission so to notify the Indemnifying Party
shall not relieve the Indemnifying Party from any liability which it may have to
any Indemnified Party otherwise under this paragraph (d) of Section 10, except
to the extent that the Indemnifying Party is actually prejudiced by such failure
to give notice. The parties hereto agree with each other and shall agree with
the underwriters of the Common Stock of the Company pursuant to the terms
hereof, if requested by such underwriters, that (a) the underwriters' portion of
such contribution shall not exceed the underwriting discount, commission and
other compensation and (b) except for the Company, the amount of such
contribution shall not exceed an amount equal to the proceeds received by such
Indemnifying Party from the sale of securities in the offering to which the
losses, claims, damages or liabilities of the indemnified parties relate. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
11. Lock-up Agreement. In consideration for the Company agreeing to its
obligations under this Agreement, each Holder of Registrable Securities and each
transferee pursuant to Section 15 hereof agrees, in connection with a Qualified
Public Offering, upon request of the Company or the underwriters managing such
offering, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities or other
securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as the Company or the
underwriters may specify. Each Holder agrees that the Company may instruct its
transfer agent to place stop transfer notations in its records to enforce the
provisions of this Section 11.
12. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
13. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the
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public without registration, after such time as a public market exists for the
Common Stock of the Company, the Company agrees to:
(a) Public Information. Make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times after the effective date of the first registration
under the Securities Act filed by the Company for an offering of its securities
to the general public;
(b) Filings with SEC. Use its best efforts to then file with
the Commission in a timely manner all reports and other documents required of
the Company under the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements); and
(c) Compliance Statement. Furnish to Holders of Registrable
Securities forthwith upon request, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time after ninety
(90) days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public), and of the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder of Registrable Securities may reasonably
request in availing itself of any rule or regulation of the Commission allowing
such Holder to sell any such securities without registration.
14. Information Rights. Upon request, the Company will furnish to any
Party, after the end of each fiscal year, unaudited, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and unaudited, consolidated statements of income and unaudited, consolidated
statements of cash flows of the Company and its subsidiaries, if any, for such
year, each signed by the principal financial or accounting officer of the
Company; provided, however, that such Party first executes a confidentiality
agreement in a form provided by the Company. The information rights set forth in
this Section 14 shall expire upon the closing date of a Qualified Public
Offering.
15. Transfer of Registration Rights and Information Rights. The right
granted hereunder to cause the Company to register securities or to participate
in a registration of the Company or to receive information of the Company
pursuant to Section 14 may not be assigned to any transferee or assignee of
Restricted Securities unless such transferee or assignee receives and thereafter
holds at least two hundred thousand (200,000) shares of Common Stock issued or
issuable upon conversion of the Series D Preferred Stock.
16. Right to Maintain.
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(a) General. Until the closing date of a Qualified Public
Offering, if the Company desires to issue and sell shares of its capital stock
or rights, options or other securities exercisable for or convertible into
shares of its capital stock, then the Company shall first notify each Party of
the material terms of such proposed sale (such notice, a "COMPANY ISSUANCE
NOTICE"). The Company shall then permit each Party to acquire, at the time of
the closing of such sale, such number of the shares of capital stock or other
securities as would enable such Party to maintain its percentage of equity
ownership (calculated on a fully diluted basis, assuming the conversion of all
series of the Company's Preferred Stock and exercise of all options and other
rights to acquire Common Stock) in the Company following such issuance at a
level held by it immediately prior to such issuance. The Parties shall each have
ten (10) days after the delivery of any Company Issuance Notice to elect by
notice to the Company to purchase such shares or securities at the time of the
closing of such sale.
(b) Exceptions. The rights set forth in Section 16(a) shall
not apply to the issuance of (i) shares or grant of options (including shares
issuable upon exercise of such options) to any employee, consultant, or director
of the Company, or banks, building developers or equipment lessors, under any
Company stock purchase and/or stock option plans or arrangements approved by the
Company's Board of Directors, (ii) shares of Common Stock issued upon conversion
of any series of preferred stock of the Company, (iii) shares of the Company's
capital stock or rights, options or other securities issued pursuant to a stock
split of the Common Stock or Company declared dividend, (iv) Company securities
(including, without limitation, options, warrants and preferred stock) issued in
connection with a merger or acquisition or strategic partnering or joint venture
agreement, (v) Company securities (including, without limitation, options,
warrants and preferred stock) issued to banks, lenders, equipment financiers and
the like, or (vi) shares of Common Stock sold in a Qualified Public Offering.
17. Right of First Refusal. Prior to the closing date of a Qualified
Public Offering, before there can be a valid sale or transfer for consideration
of any Restricted Securities by any holder thereof, such holder shall first
offer those Restricted Securities to the Company in the following manner:
(a) Notice. The holder of the Restricted Securities shall
deliver a written notice to the Company stating the price, terms, and conditions
of such proposed sale or transfer, the number and type of Restricted Securities
to be sold or transferred, and his intention to so sell or transfer such
Restricted Securities. Within thirty (30) days thereafter, the Company shall
have the prior right to purchase any and all of the Restricted Securities
offered at the price and upon the terms and conditions stated in such notice (it
being understood that the Company may assign this right in its sole discretion).
(b) Sale. If none or only a part of the Restricted Securities
in such holder's notice is purchased by the Company (or an assignee of the
Company) within a thirty (30) day period from the date of delivery of the notice
by such holder to the Company, the holder may sell or transfer to any person or
persons all Restricted Securities referred to in his notice that were not
purchased by the Company, but only within a period of one hundred twenty (120)
days from the date of his first notice; and provided that he shall not sell or
transfer such Restricted Securities at a lower price or on terms more
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favorable to the purchaser or transferee than those specified in his notice to
the Company. After said one hundred and twenty (120) day period, the foregoing
procedure for first offering the Restricted Securities to the Company shall
again apply.
(c) Restrictions. Any sale or transfer or purported sale or
transfer of the Restricted Securities of the Company shall be null and void
unless the terms, conditions, and provisions of Sections 2, 4 and this Section
17 are strictly observed and followed.
(d) Exception. The Parties expressly acknowledge that a
distribution of Restricted Securities by any holder thereof to a Family Member
or any Affiliate of such holder shall not be considered a "sale or transfer for
consideration" which triggers the rights and obligations described in this
Section 17.
18. Governing Law. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the exclusive jurisdiction and venue of the United States District Court for the
Northern District of California with respect to the breach or interpretation of
this Agreement or the enforcement of any and all rights, duties, liabilities,
obligations, powers, and other relations between the parties arising under this
Agreement.
19. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.
20. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and deemed given on the business day
following delivery to the recipient in person or by overnight courier service or
by facsimile (with acknowledgment of transmission), and addressed (a) if to a
Series C Preferred Holder, to such holder's address set forth below, or at such
other address as such holder shall have furnished to the Company in writing, or
until any such holder so furnishes an address to the Company, then to the
address of the last holder of such securities who has so furnished an address to
the Company, or (b) if to the Company, to its address set forth on the signature
page of this Agreement, to the attention of the Chief Executive Officer, or at
such other address as the Company shall have furnished to the Holders.
21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one and
the same instrument.
-12-
<PAGE> 13
22. Amendment. Any provision of this Agreement may be amended, waived,
modified, discharged or terminated only with the written consent of the Company
and the holders of a majority in interest of the Series D Preferred Stock (or
Common Stock issuable upon conversion thereof). Any amendment or waiver effected
in accordance with this paragraph will be binding upon the Company and each
holder of any securities subject to this Agreement (including securities into
which such securities are convertible) and future holders of all such
securities. Any Holder may waive his or her rights or the Company's obligations
hereunder without obtaining the consent of any other person.
23. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
24. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
25. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
* * * *
-13-
<PAGE> 14
IN WITNESS WHEREOF, the undersigned have executed this Series D
Preferred Stockholders' Rights Agreement as of the date set forth above.
"COMPANY" "INVESTOR"
GOTO.COM, INC. ------------------------------------------
a Delaware Corporation Print Name of Investor as it is to appear
on stock certificate
- --------------------------------
Jeffrey Brewer,
Chief Executive Officer ------------------------------------------
Authorized Signature
------------------------------------------
Title of Signatory (if appropriate)
"INVESTOR"
------------------------------------------
Print Name of Investor as it is to appear
on stock certificate
------------------------------------------
Authorized Signature
------------------------------------------
Title of Signatory (if appropriate)
"INVESTOR"
------------------------------------------
Print Name of Investor as it is to appear
on stock certificate
------------------------------------------
Authorized Signature
------------------------------------------
Title of Signatory (if appropriate)
[Signature pages to Series D Preferred Stockholders' Rights Agreement]
-14-
<PAGE> 15
EXHIBIT A
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated April 2, 1999 except for the third paragraph of Note 1
as to which the date is April 14, 1999, in the Registration Statement (Form S-1)
dated April 16, 1999 and related Prospectus of GoTo.com, Inc. for the
registration of shares of its common stock.
Our audit also included the financial statement schedule of GoTo.com, Inc.
listed in Item 16(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Los Angeles, California
April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF GOTO.COM FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> SEP-15-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 294,000 16,357,000
<SECURITIES> 0 0
<RECEIVABLES> 22,000 442,000
<ALLOWANCES> 0 (86,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 316,000 18,604,000
<PP&E> 57,000 1,611,000
<DEPRECIATION> (3,000) (275,000)
<TOTAL-ASSETS> 421,000 19,969,000
<CURRENT-LIABILITIES> 91,000 3,389,000
<BONDS> 0 0
0 0
207,000 28,645,000
<COMMON> 243,000 3,173,000
<OTHER-SE> (120,000) (15,421,000)
<TOTAL-LIABILITY-AND-EQUITY> 421,000 19,969,000
<SALES> 0 0
<TOTAL-REVENUES> 22,000 822,000
<CGS> 0 0
<TOTAL-COSTS> 141,000 14,851,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 86,000
<INTEREST-EXPENSE> 0 19,000
<INCOME-PRETAX> (119,000) (13,713,000)
<INCOME-TAX> 1,000 1,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (120,000) (13,714,000)
<EPS-PRIMARY> (0.01) (1.33)
<EPS-DILUTED> (0.01) (1.33)
</TABLE>
